Question 22 Chapter 3 of +2-A
Table of Contents
22. Gupta and Bose had a firm in which they had invested 50,000. On an average, the profits were 16,000. The normal rate of return in the industry is 15%. Goodwill is to be valued at four years’ purchase of profits in excess of profits @ 15% on the money invested. Calculate the value goodwill.
The solution of Question 22 Chapter 3 of +2-A:
| Super Profit | = | Actual average Profit- Normal Profit |
| Actual average Profit | = | Average Profit + Adjustments (if any) |
| = | 16,000 + 0 | |
| = | 16,000 |
| Normal Profit | = | Capital Employed | X | Normal Rate of Return |
| 100 |
| = | 50,000 | X | 15 | |
| 100 | ||||
| = | 7,500 |
| Super Profit | = | 16,000- 7,500 |
| = | 8,500 |
Number of years’ purchase = 4
| Goodwill | = | Super ProfitX number of years of purchase |
| Goodwill | = | 8,500 X 3 |
| Goodwill | = | 34,000 |
T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
- Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
- Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
- Chapter No. 3 – Goodwill: Nature and Valuation
- Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
- Chapter No. 5 – Admission of a Partner
- Chapter No. 6 – Retirement/Death of a Partner
- Chapter No. 7 – Dissolution of a Partnership Firm
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 8 – Company Accounts – Accounting for Share Capital
- Chapter No. 9 – Company Accounts – Issue of Debentures
- Chapter No. 10 – Redemption of Debentures
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 1 – Financial Statements of a Company
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
- Chapter No. 4 – Accounting Ratios
- Chapter No. 5 – Cash Flow Statement
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