Question 16:
A business earned an average profit of ` 8,00,000 during the last few years. The normal rate of profit in the similar type of business is 10%. The total value of assets and liabilities of the business were ` 22,00,000 and ` 5,60,000 respectively. Calculate the value of goodwill of the firm by super profit method if it is valued at 2½ years' purchase of super profits.
Answer:
Average profit =80,000
Normal profit = Capital employed×Rate of
return/100
Normal profit = 16,40,000×10/100=1,64,000
Capital employed = total assests- Outside liabilities
Capital employed = 22,00,000- 5,60,000=16,40,000
Super profit = Actual profit - Normal profit
Super profit =8,00,000-1,64,000=6,36,000
Goodwill= Super profit × no. of purchases
years’
Number of years’ purchase = 2.5
Goodwill= 6,36,000×2.5 =15,90,000
Question 17:
Average net profit expected in future by XYZ firm is ` 36,000 per year. Average capital employed in the business by the firm is ` 2,00,000. The normal rate of return from capital invested in this class of business is 10%. Remuneration of the partners is estimated to be ` 6,000 p.a. Calculate the value of goodwill on the basis of two years' purchase of super profit.
Answer:
Goodwill= Super profit × no. of purchases
years’
Normal profit = Capital employed×Rate of
return/100
Normal profit = 2,00,000×10/100=20,000
Actual exceeded profit =30,000-6000=30,000
Super profit = Actual profit - Normal profit
Super profit = 30,000 – 20,000=10,000
Number of years’ purchase = 2
Goodwill =10,000×2=20,000
Question 18:
A partnership firm earned net profits during the last three years ended 31st
March, as follows: 2021 − `
17,000; 2022 − `
20,000; 2023 − `
23,000.
The capital investment in the firm throughout the above-mentioned period has
been ` 80,000. Having regard to the risk
involved, 15% is considered to be a fair return on the capital. Calculate value
of goodwill on the basis of two years' purchase of average super profit earned
during the above-mentioned three years.
Answer:
Goodwill=
Super profit × no. of purchases years’
Average profit = total profit of past given
years/number of years
Average Actual profit
=17,000+20,000+20,000/3=20000
Normal
profit = Capital employed×Rate of return/100
Normal
profit = 20,000×15/100=12,000
Super profit = Actual profit - Normal profit
Super profit = 20,000 – 12,000=8,000
Number of years’ purchase = 2
Goodwill=
8,000 × 2=16,000
Question 19:
On 1st April, 2023, an existing firm had assets of ` 75,000 including cash of ` 5,000. Its creditors amounted to ` 5,000 on that date. The firm had a Reserve of ` 10,000 while Partners' Capital Accounts showed a balance of ` 60,000. If Normal Rate of Return is 20% and goodwill of the firm is valued at ` 24,000 at four years' purchase of super profit, find average profit per year of the existing firm.
Answer:
Average profit = total profit of past given
years/number of years
Capital Employed = Total Assets - Creditors
= 75,000 -5,000 = ` 70,000
Goodwill of the firm = ` 24,000
Number of years’ purchase = 4
Goodwill=
Super profit × no. of purchases years’
Or, 24,000 = Super Profit / 4
=24,000/ 4
=6,000
Average profit = Normal profit+ Super profit
20,000=14,000+6,000
Question 20:
Average profit
of a firm during the last few years is `2,00,000 and the
normal rate of return in a similar business is 10%. If the goodwill of the firm
is `2,50,000 at 4 years'
purchase of super profit, find the capital employed by the firm.
Answer:
Goodwill= Super profit × no. of
purchases years’
2,50,000=(Average profit –
Normal profit ) × 4 purchases years’
Or 250,000/4-2,00,000=- Normal profit
Or Normal
profit =1,37,500
Normal rate
of return=10%
Capital
employed = Normal profit ×100/ normal rate of return
Capital employed =1,37,500×100/10=13,75,000
Ts Grewal Solution 2023-2024
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Class 12 / Volume – I