Question 46 Chapter 3 of +2-A - T.S. Grewal 12 Class Part

Question 46 Chapter 3 of +2-A

Table of Contents

The solution of Question 46 Chapter 3 of +2-A:

T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

46. A business has earned average profit of 4,00,000 during the last few years and the normal rate of return in similar business is 10%. Find value of goodwill by:

Capitalisation of Super Profit Method; and
Super Profit Method if the goodwill is valued at 3 years’ purchase of super profit.
Assets of the business were 40,00,000 and its external liabilities 7,20,000.

The solution of Question 46 Chapter 3 of +2-A:

Capital Employed	=	Total Assets – Creditors
	=	40,00,000 – 7,20,000
	=	32,80,000

Normal Profit	=	Capital Employed	X	Normal Rate of Return
				100

=	32,80,000	X	10
			100
=	3,28,000

Super Profit	=	Actual Profit – Normal Profit
	=	4,00,000 – 3,28,000
	=	72,000

Goodwill (Capitalized Value of Super Profit)	=	Super Profit X 100
		Normal Rate of Return

	=	72,000 X 100
	=	10
	=	7,20,000

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(ii) Super Profit Method if the goodwill is valued at 3 years’ purchase of super profits

Goodwill	=	Super Profit X Numbers of years of purchases
	=	72,000 X 3
	=	2,16,000

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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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