Question 21:
Average profit earned by a firm is ` 1,00,000 which includes undervaluation of stock of ` 40,000 on an average basis. The capital invested in the business is ` 6,30,000 and the normal rate of return is 5%. Calculate goodwill of the firm on the basis of 5 times the super profit.
Answer:
Average normal profit= (Average Profit + Undervaluation of stock on average basis*)
Average normal profit = `(1,00,000+40,000)= `1,40,000
Capital Employed in the business= `6,30,000
Normal Profits=Capital Employed×Normal Rate of Return/100= `6,30,000×5/100= `31,500
Super Profits=Average Normal Profits - Normal Profits= `(1,40,000-31,500)= `1,08,500
Goodwill=Super Profits × No. of years of purchase= `(1,08,500×5)= `5,42,500
*Stock has been taken to be closing stock if nothing is specified in the question
Question 22:
Average profit earned by a firm is ` 7,50,000 which includes overvaluation of stock of ` 30,000 on an average basis. The capital invested in the business is ` 42,00,000 and the normal rate of return is 15%. Calculate goodwill of the firm on the basis of 3 time the super profit.
Answer:
Average
Profit earned by a firm = `
7,50,000
Overvaluation of Stock = ` 30,000
Average Actual Profit = Average Profit earned by a firm –
Overvaluation of Stock
or, Average Actual Profit = 7,50,000 – 30,000 = ` 7,20,000
Normal
profit = Capital employed×Rate of return/100
Normal
profit = 42,00,000×15/6,30,000
Super Profit = Actual Average Profit – Normal Profit
or, Super Profit = 7,20,000 – 6,30,000 = ` 90,000
Goodwill = Super Profit × Number of Times
Goodwill = 90,000 × 3 = ` 2,70,000
Question 23:
Ayub and Amit are partners in a firm and they admit Jaspal into partnership w.e.f. 1st April, 2023. They agreed to value goodwill at 3 years' purchase of Super Profit Method for which they decided to average profit of last 5 years. The profits for the last 5 years were:
|
Year Ended |
Net Profit (
`) |
|
|
31st
March, 2019 |
1,50,000 |
|
|
31st
March, 2020 |
1,80,000 |
|
|
31st
March, 2021 |
1,00,000 |
(Including
abnormal loss of `
1,00,000) |
|
31st
March, 2022 |
2,60,000 |
(Including
abnormal gain (profit) of ` 40,000) |
|
31st
March, 2023 |
2,40,000 |
|
The
firm has total assets of `
20,00,000 and Outside Liabilities of ` 5,00,000 as on that date. Normal Rate of Return in similar
business is 10%.
Calculate value of goodwill.
Answer:
|
Goodwill
|
=Super Profit×No. of Years' Purchase =48,000×3=
` 1,44,000 |
Working Notes:
WN: 1 Calculation of Normal Profits:
|
Year |
Profit/(Loss)
( `) |
Adjustment |
Normal
Profit (
`) |
|
31st March, 2019 |
1,50,000 |
- |
1,50,000 |
|
31st March, 2020 |
1,80,000 |
- |
1,80,000 |
|
31st March, 2021 |
1,00,000 |
1,00,000 |
2,00,000 |
|
31st March, 2022 |
2,60,000 |
(40.000) |
2,20,000 |
|
31
March, 2023 |
2,40,000 |
- |
2,40,000 |
|
|
Total
Profit |
9,90,000 |
WN2: Calculation of Super Profits
Average profit = total profit of past given
years / number of years
Average profit =9,90,000/5=1,98,000
Normal
profit = Capital employed×Rate of return/100
=
15,00,000×10/100=1,50,000
Super profit = Actual profit - Normal profit
= 1,98,000 – 1,50,000=48,000
WN3: Calculation of Capital Employed
|
Capital Employed |
=Total Assets-Outside Liabilities =20,00,000-5,00,000= `15,00,000 |
Question 24:
From the following information,
calculate value of goodwill of the firm by applying Capitalisation
Method: Total Capital of the firm `16,00,000.
Normal rate of return 10%. Profit for the year `2,00,000.
Answer:
Goodwill=
Capitalised value – Actual capital
Capitalised
value of goodwill= profit ×100/ Normal rate of return
Capitalised
value of goodwill= 2,00,000×100/ 10=20,00,000
Total Capital = ` 16,00,000
Goodwill = 20,00,000-16,00,000 =4,00,000
Question 25:
A firm earns average profit of ` 3,00,000 during the last few years. The Normal Rate of Return of the industry is 15%. The assets of the business were ` 17,00,000 and its liabilities were ` 2,00,000.
Calculate the goodwill of the firm by Capitalisation of Average Profit Method.
Answer:
Calculation of Goodwill by Capitalisation of
Average Profit Method
|
Goodwill |
= Capitalised Value of Profit
– Actual capital employed |
|
Capitalised value of profit |
= Actual profit×100/normal rate
of return = 3,00,000×100/15 = 20,00,000 |
|
Capital employed |
= Assets- external liabilities = 30,00,000-15,00,000 = 15,00,000 |
|
Goodwill |
= 20,00,000-15,00,000 = 5,00,000 |
Ts Grewal Solution 2023-2024
Click below for more Questions
Class 12 / Volume – I