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

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)

• 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