Question 30 Chapter 3 of +2-A
Table of Contents
30. A business earned an average profit of 8,00,000 during the last few years. The normal rate of profit in a similar type of business is 10%. The total value of assets and liabilities of the business were 22,00,000 and 5,60,000 respectively. Calculate the value of goodwill of the firm by super profit method if it is valued at 2 ½ years’ purchase of super-profits.
The solution of Question 30 Chapter 3 of +2-A:
| Super Profit | = | Actual average Profit- Normal Profit |
| Actual average Profit | = | Average Profit + or -Adjustments (if any) |
| = | 8,00,000- 0 (-) | |
| = | 8,00,000 |
| Normal Profit | = | Capital Employed | X | Normal Rate of Return |
| 100 |
| = | 16,40,000 | X | 10 | |
| 100 | ||||
| = | 1,64,000 |
| Capital Employed | = | Total Assets – Outside Liabilities |
| = | 22,00,000 – 5,60,000 | |
| = | 16,40,000 | |
| Super Profit | = | 8,00,000 – 1,64,000 |
| = | 6,36,000 |
Number of years’ purchase = 2.5
| Goodwill | = | Super Profit X number of years of purchase |
| Goodwill | = | 6,36,000X 2.5 |
| Goodwill | = | 15,90,000 |
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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