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Question 48 Chapter 3 of +2-A
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Table of Contents
From the following information, calculate value of goodwill of the firm:
- At three years’ purchase of Average Profit.
- At three years’ purchase of Super Profit.
- On the basis of Capitalisation of Super Profit.
- On the basis of Capitalisation of Average profit.
Information:
- Average Capital Employed is 6,00,000.
- Net Profit/Loss of the firm for the last three years ended are: 31st March, 2018 − 2,00,000, 31st March, 2017 − 1,80,000, and 31st March, 2016 − 1,60,000.
- Normal Rate of Return in similar business is 10%.
- Remuneration of 1,00,000 to partners is to be taken as charge against profit.
- Assets of the firm excluding goodwill, fictitious assets and non −trade
- investments is 7,00,000 whereas Partners’ Capital is 6,00,000 and Outside Liabilities 1,00,000.
The solution of Question 48 Chapter 3 of +2-A:
i) Calculation of Goodwill with average Profit
Number of years of purchase= 3
| Goodwill | = | Average Profit*1 X Number of years of purchase |
| = | 80,000 X 3 | |
| = | 2,40,000 |
ii) At three years’ purchase of Super Profit.
Number of years’ purchase = 3
| Goodwill | = | Average Profit*1 X Number of years of purchase |
| = | 20,000 X 3 | |
| = | 60,000 |
iii) On the basis of Capitalisation of Super Profit.
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| Goodwill | = | Super Profit *2 | X | 100 |
| Normal Rate of Return |
| = | 20,000 | X | 100 | |
| 10 | ||||
| = | 2,00,000 |
iv) On the basis of Capitalisation of Average profit
| Capitalized value of Profit | = | Average Profit*1 | X | 100 |
| Normal Rate of Return |
| = | 80,000 | X | 100 | |
| 10 | ||||
| = | 8,00,000 |
| Goodwill | = | Capitalized value of Profit – Actual Capital |
| = | 10,00,000 – 8,00,000 | |
| = | 2,00,000 |
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Working Notes : –
*1 Calculation of Adjusted Average Profit
| Average Profit | = | Adjusted Profit for past given years*1 |
| Number of years |
| = | 2,00,000 + 1,80,000 + 1,60,000 | |
| 3 | ||
| = | 5,40,000 | |
| 3 | ||
| = | 1,80,000 |
| Adjusted Average Profit | = | Average Profit − Remuneration |
| = | 1,80,000 -1,00,000 | |
| = | 80,000 |
*2 Calculation of Super Profit
| Capital Employed | = | Total Assets- Outsiders Liabilities |
| = | 4,00,000 -1,00,000 | |
| = | 6,00,000 |
| Normal Profit | = | Capital Employed | X | Normal Rate of Return |
| 100 |
| = | 6,00,000 | X | 10 | |
| 100 | ||||
| = | 60,000 |
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| Super Profit | = | Actual Profit*1 – Normal Profit |
| = | 80,000 – 60,000 | |
| = | 20,000 |
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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