commercemine.com

12th | Goodwill: Nature and Valuation | Question No. 1 To 5 | Ts Grewal Solution 2023-2024

Question 1:


Goodwill is to be valued at three years' purchase of four years' average profit. Profits for last four years ending on 31st March of the firm were:
2020 −
 ` 12,000; 2021 −  ` 18,000;2022 −  ` 16,000; 2023 −  ` 14,000.
Calculate amount of Goodwill.

 

Answer:

Goodwill= Average profit × no. of purchases years’

Average profit = total profit of past given years/number of years

Average profit =12,000+18,000+16,000+14,000/4=15,000

Number of years’ purchase = 3

Goodwill= Average profit × no. of purchases years’

Goodwill= 15,000 × 3=45,000

Question 2:


Profits for the five years ending on 31st March, are as follows:
Year 2019 −
 ` 4,00,000; Year 2020 −  ` 3,98,000; Year 2021 −  ` 4,50,000; Year 2022 −  ` 4,45,000 and Year 2023 −  ` 5,00,000.
Calculate goodwill of the firm on the basis of 4 years' purchase of 5 years' average profit.

Answer:

Goodwill=Average Profit×Number of Years' Purchase

Average Profits = Total Profit÷Number of Years

Average Profits = 4,00,000+3,98,000+4,50,000+4,45,000+5,00,000÷5

Average Profits = 21,93,000÷5= ` 4,38,600

Goodwill =4,38,600×4= ` 17,54,400

 

Question 3:


Annu, Baby and Chetan are partners in a firm sharing profits and losses equally. They decide to take Deep into partnership from 1st April, 2022 for 1/5th share in the future profits. For this purpose, goodwill is to be valued at 100% of the average annual profits of the previous three or four years, whichever is higher. The annual profits for the purpose of goodwill for the past four years were:

Year Ended

Profit ( `)

31st March, 2023

2,88,000;

31st March, 2022

1,81,800;

31st March, 2021

1,87,200;

31st March, 2020

2,53,200.

Calculate the value of goodwill.

Answer:

Average Profits of Previous three years= 2,88,000+1,81,8000+1,87,200÷3= ` 2,19,000
Average Profits of Previous four years= 2,88,000+1,81,800+1,87,200+2,53,200÷4=  ` 2,27,550
Since, the average profits of previous four years is greater than the average profits of previous three years.
Hence, Goodwill = 100% of Average Profits of Previous four years =  ` 2,27,550

Question 4:


Purav and Purvi are partners in a firm sharing profits and losses in the ratio of 2 : 1. They decide to take Parv into partnership for 1/4th share on 1st April, 2023. For this purpose, goodwill is to be valued at four times the average annual profit of the previous four or five years, whichever is higher. The agreed profits for goodwill purpose of the past five years are:

Year

2019

2020

2021

2022

2023

Profits ( `)

14,000

15,500

10,000

16,000

15,000

Calculate the value of goodwill.

Answer:

Calculation of Average Profit for Five Years

Year

Profit

2019

14,000

2020

15,500

2021

10,000

2022

16,000

2023

15,000

Total Profit

70,500

 

Average Profit for Five Years=70,500/5=14,100

Calculation of Average Profit for Four Years

Year

Profit

2020

15,500

2021

10,000

2022

16,000

2023

15,000

Total Profit

56,500

 

 Average Profit for Five Years=56,500/4=14,125

Average Profit of four years is taken to compute the value of goodwill of the firm. This is because Average Profit of four years is more than the Average Profit of five years.

Goodwill= Average profit × no. of purchases years’

Goodwill= 14,125 ×4 =56,500

 

Question 5: Asin and Shreyas were partners sharing profits and losses in the ratio of 2:1. They admitted Shyam as a partner for 1/5th share in profits. For this purpose Goodwill of the firm was to be valued on the basis of three years' purchase of last five years' average profit. Profits for the last five years ended 31st March, were:


Year

2019

2020

2021

2022

2023

Profit (`)

1,25,000

1,00,000

1,87,500

(62,500)

1,25,000

Calculate Goodwill of the firm after adjusting the following:

Profit of 2019-20 was calculated after charging 25,000 for abnormal loss of goods by fire.

Answer;

Goodwill= Average profit × no. of purchases years’

=Sum of normal profit × no. of purchases years’/total no. of years

=1,25,000+1,00,000+25,000+1,87,500+(62,500)+1,25,000/5×3 (purchases years’)

=3,00,000

 

Ts Grewal Solution 2023-2024

Click below for more Questions

Class 12 / Volume – I

Chapter 2 – Nature And Valuation of Goodwill

 

Question No. 1 To 5
Question No. 6 To 10
Question No. 11 To 15
Question No. 16 To 20
Question No. 21 To 25
Question No. 26 To 30
Question No. 31 To 35
Question No. 36 and 37