Question 46 Chapter 3 of +2-A
Table of Contents
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 |
(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 |
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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