Question 41 Chapter 3 of +2-A
Table of Contents
41. A firm earns profit of 5,00,000. Normal Rate of Return in a similar type of business is 10%. The value of total assets excluding goodwill and total outsiders’ liabilities as on the date of goodwill are 55,00,000 and 14,00,000 respectively. Calculate value of goodwill according to Capitalisation of Super Profit Method as well as Capitalisation of Average Profit Method.
The solution of Question 41 Chapter 3 of +2-A:
(i) Calculation of Goodwill by Capitalisation of Super Profit Method
| Capital Employed | = | Total Assets – Creditors |
| = | 55,00,000 – 14,00,000 | |
| = | 41,00,000 |
| Normal Profit | = | Capital Employed | X | Normal Rate of Return |
| 100 |
| = | 41,00,000 | X | 10 | |
| 100 | ||||
| = | 4,10,000 |
| Super Profit | = | Actual Profit – Normal Profit |
| = | 5,00,000 – 4,10,000 | |
| = | 90,000 |
| Capitalized Value of Average Profit | = | Super Profit X 100 |
| Normal Rate of Return |
| = | 90,000 x 100 | |
| 10 | ||
| = | 9,00,000 |
(ii) Calculation of Goodwill by Capitalisation of Average Profit Method
| Capitalized Value of Profit | = | Average Profit X 100 |
| Normal Rate of Return |
| = | 5,00,000 x 100 | |
| 10 | ||
| = | 50,00,000 |
| Capital Employed | = | Total Assets – Creditors |
| = | 55,00,000 – 14,00,000 | |
| = | 41,00,000 |
|
| Goodwill | = | Capitalized value of Profit – Actual Capital |
| = | 50,00,000 – 41,00,000 | |
| = | 9,00,000 |
| Normal Profit | = | Capital Employed | X | Normal Rate of Return |
| 100 |
| = | 6,30,000 | X | 5 | |
| 100 | ||||
| = | 31,500 |
| Capitalized Value of Average Profit | = | Super Profit X 100 |
| Normal Rate of Return |
| = | 90,000 x 100 | |
| 10 | ||
| = | 9,00,000 |
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)
- 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
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
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