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Question 20 Chapter 3 of +2-Part-1
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20. (Super Profit/Capitalisation method) A firm earns a profit of Rs.5,000 per year. The average capital employed in the business by the firm is Rs.25,000. The normal rate of return on the capital employed in similar business is 10%.
You are required to calculate goodwill of the firm by
a. Super profit method on the basis of three years purchase.
b. Capitalisation method (Both super profit & average profit).
The solution of Question 20 Chapter 3 of +2 Part-1: –
Actual Profits p.a | = | Rs.5,000 |
Capital Employed | = | Rs. 25,000 |
Rate of return | = | 10% |
Normal Profit | = | Capital Employed | X | Normal Rate of Return |
100 | ||||
= | 25,000 | X | 10 | |
100 | ||||
= | 2,500 |
i) Super Normal Profit Method
Super Profit | = | Actual Profit – Normal Profit |
= | 5,000 – 2,500 | |
= | 2,500 |
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Number of years’ purchase | = | 3 |
Goodwill | = | Super Profit X Number of years’ purchase |
= | 2,500 X 3 | |
= | 7,500 |
ii) Capitalisation Method:
a) Capitalisation of Super Profits Method:
Goodwill | = | Super Profit | X | 100 |
Normal Rate of Return | ||||
= | 2,500 | X | 100 | |
10 | ||||
= | 25,000 |
b) Capitalisation of Average Profits Method:
Capitalisation of Business | = | Super Profit | X | 100 |
Normal Rate of Return | ||||
= | 5,000 | X | 100 | |
10 | ||||
= | 50,000 |
Goodwill | = | Capitalised value of the business – Average Capital Employed |
= | 50,000 – 25,000 | |
= | 25,000 |
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Also, Check out the solved question of previous Chapters: –
Usha Publication – Accountancy PSEB (Class 12) – Volume I – Solution
- Chapter No. 1 – Accounting Not for Profit Organisations
- Chapter No. 2 – Partnership Accounts – I (Introduction)
- Chapter No. 3 – Partnership Accounts – II (Goodwill: Nature and Valuation)
- Chapter No. 4 – Partnership Accounts – III (Reconstitution of Partnership)
- Chapter No. 5 – Partnership Accounts – IV (Admission of A Partner)
- Chapter No. 6 – Partnership Accounts – V (Retirement and Death of A Partner)
- Chapter No. 7 – Partnership Accounts – VI (Dissolution of Partnership Firm)
- Chapter No. 8 – Company Accounts (Share Capital)
- Chapter No. 9 – Company Accounts (Issue of Debentures)
- Chapter No. 10 – Company Accounts (Redemption of Debentures)
Usha Publication – Accountancy PSEB (Class 12) – Volume II – Solution
- Chapter No. 1 – Financial Statements of a Company
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis- Comparative and Common Size
- Chapter No. 4 – Ratio Analysis
- Chapter No. 5 – Cash Flow Statement
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
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