Question 25 Chapter 3 of +2-A
Table of Contents
25. Average net profit expected in future by XYZ firm is 36,000 per year. Average capital employed in the business by the firm is 2,00,000. The normal rate of return from capital invested in this class of business is 10%. Remuneration of the partners is estimated to be 6,000 p.a. Calculate the value of goodwill on the basis of two years’ purchase of super profit.
The solution of Question 25 Chapter 3 of +2-A:
| Super Profit | = | Actual average Profit- Normal Profit |
| Actual average Profit | = | Average Profit + Adjustments (if any) |
| = | 36,000+ 6,000 (Partners Remuneration) | |
| = | 30,000 |
| Normal Profit | = | Capital Employed | X | Normal Rate of Return |
| 100 |
| = | 2,00,000 | X | 10 | |
| 100 | ||||
| = | 3,750 |
| Super Profit | = | 30,000 – 20,000 |
| = | 10,000 |
Number of years’ purchase = 2
| Goodwill | = | Super ProfitX number of years of purchase |
| Goodwill | = | 10,000X 2 |
| Goodwill | = | 20,000 |
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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