Question 28 Chapter 3 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 28 Chapter 3 of +2-A

Question 28 Chapter 3 of +2-A

28. Ideal Marketing earned an average profit of 4,00,000 during the last five years. The normal rate of return on capital employed is 10%. Balance Sheet of the firm as at 31st March 2019 was as follows:

Liabilities   Amount Assets  Amount
Capital A/cs:     Land and Building  10,00,000 
Shyam 5,00,000   Furniture  2,00,000
Sunder 5,00,000 10,00,000 Investments  1,00,000
Current A/cs:     Sundry Debtors 5,00,000
Shyam 2,00,000   Bills Receivable 50,000
Sunder 2,00,000 4,00,000 Closing Stock  3,00,000
Reserves   3,40,000 Cash in Hand 50,000
Sundry Creditors   4,00,000 Cash at Bank  1,00,000
Bills Payable    1,00,000    
Outstanding Expenses    60,000    
    23,00,000   23,00,000

Calculate the value of goodwill, if it is valued at three years’ purchase of Super Profits.

The solution of Question 28 Chapter 3 of +2-A

:

 

 

Super Profit Actual average Profit- Normal Profit
Actual average Profit = Average Profit + or -Adjustments (if any)
  = 4,00,000- 0 (-)
  = 4,00,000

 

Normal Profit = Capital Employed X Normal Rate of Return
100
  = 16,40,000 X 10
100
  = 1,64,000    

 

Capital Employed Total Assets – Non -Trade Investments- Outside Liabilities
  = 23,00,000-1,00,000-5,60,000
  = 16,40,000
Super Profit = 4,00,000-1,64,000
  = 2,36,000



Number of years’ purchase = 3

Goodwill = Super Profit X number of years’ purchase
Goodwill = 2,36,000X 3
Goodwill  = 7,08,000

 

 



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)

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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2 Book 1 min - Question 28 Chapter 3 of +2-A - T.S. Grewal 12 Class Part - A Vol. 1
Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms

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