Question 48 Chapter 3 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 48 Chapter 3 of +2-A

Question 48 Chapter 3 of +2-A

From the following information, calculate value of goodwill of the firm:

  1. At three years’ purchase of Average Profit.
  2. At three years’ purchase of Super Profit.
  3. On the basis of Capitalisation of Super Profit.
  4. On the basis of Capitalisation of Average profit.
    Information:
  1. Average Capital Employed is 6,00,000.
  2. 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.
  3. Normal Rate of Return in similar business is 10%.
  4. Remuneration of 1,00,000 to partners is to be taken as charge against profit.
  5. Assets of the firm excluding goodwill, fictitious assets and non −trade
  6. 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’ purchase= 3

Goodwill = Average Profit*1 X Number of years’ 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’ purchase
  = 20,000 X 3
  = 60,000

iii) On the basis of Capitalisation of Super Profit.

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

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    

 

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)

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 48 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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