Question 29 Chapter 3 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 29 Chapter 3 of +2-A

Question 29 Chapter 3 of +2-A

29. Varuna and Karuna are partners for equal shares. They admit Lata into a partnership for 1/4th share. It was agreed to value the goodwill of the firm at 4 years’ purchase of super profit. The normal rate of return is 15% of the capital employed. Average profit of the firm is 4,00,000. Balance Sheet of the firm as at 31st March 2019 was as follows:

Liabilities   Amount Assets  Amount
Capital A/cs:     Furniture  4,00,000
Varuna  5,00,000   Computers   3,00,000
Karuna  5,00,000 10,00,000 Investments Trade  2,00,000
Long-term Loan    5,50,000 Stock 3,00,000
Sundry Creditors    2,00,000 Sundry Debtors  3,00,000
Outstanding Expenses   50,000 Bills Receivable 50,000
Advances from Customers   1,50,000 Cash in Hand 50,000
      Cash at Bank  2,00,000
      Deferred Revenue Expenditure: Advertisement Suspense 50,000
    19,50,000   23,00,000

Calculate the value of goodwill

The solution of Question 29 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
  = 15,00,000 X 15
100
  = 2,25,000    

 

Capital Employed Total Assets –Fictitious Assets-Current Liabilities
  = 19,50,000-50,000-4,00,000
  = 15,00,000
Super Profit = 4,00,000 – 2,25,000
  = 1,75,000



Number of years’ purchase = 4

Goodwill = Super Profit X number of years’ purchase
Goodwill = 1,75,000 X 4
Goodwill  = 7,00,000

 

 



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 29 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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