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12th | Goodwill: Nature and Valuation | Question No. 21 To 25 | Ts Grewal Solution 2023-2024

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

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