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12th | Goodwill: Nature and Valuation | Question No. 16 To 20 | Ts Grewal Solution 2023-2024

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

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