Question 41 Chapter 3 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 41 Chapter 3 of +2-A

Question 41 Chapter 3 of +2-A

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)

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

2 Book 1 min - Question 41 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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