Question 45 Chapter 3 of +2-A
Table of Contents
45. Average profit of GS & Co. is 50,000 per year. Average capital employed in the
business is 3,00,000. If the normal rate of return on capital employed is 10%, calculate goodwill of the firm by:
- Super Profit Method at three years’ purchase; and
- Capitalisation of Super Profit Method.
The solution of Question 45 Chapter 3 of +2-A:
| Normal Profit | = | Capital Employed | X | Normal Rate of Return |
| 100 |
| = | 3,00,000 | X | 10 | |
| 100 | ||||
| = | 30,000 |
| Super Profit | = | Actual Profit – Normal Profit |
| = | 50,000 – 30,000 | |
| = | 20,000 |
(i) Super Profit Method at three years’ purchase
| Goodwill | = | Super Profit X Numbers of years of purchases |
| = | 20,000 X 3 | |
| = | 60,000 |
| Goodwill | = | Super Profit | X | 100 |
| Normal Rate of Return |
| = | 20,000 | X | 100 | |
| 20 | ||||
| = | 2,00,000 |
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
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