Question 36:
A business has earned average profit of ` 8,00,000 during the last few
years and the normal rate of return in similar business is 10%. Find value of
goodwill by:
(i) Capitalisation of Super
Profit Method; and
(ii) Super Profit Method if the goodwill is valued at 3 years' purchase of
super profit.
Assets of the business were ` 80,00,000
and its external liabilities
` 14,40,000.
Answer:
Capital Employed=Total Assets - External Liabilities
=
`(80,00,000-14,40,000)=
`65,60,000
Normal Profits=Capital Employed
× Normal Rate of Return/100
=
`65,60,000×10/100= `6,56,000
Average Profits=
`8,00,000
Super Profits=Average Profits - Normal Profits
=
`(8,00,000 - 6,56,000)=
`1,44,000
(i)As per Capitalisation of Super Profit method,Goodwill=Super Profit×100Normal Rate of Return
= `1,44,000×100/10=
`14,40,000
(ii)As per Super Profit method,Goodwill=Super Profit × No. of years of purchase
= `(1,44,000×3)=
`4,32,000
Question 37:
From the following information, calculate value of goodwill of the firm:
(i) At three years' purchase of Average Profit.
(ii) At three years' purchase of Super Profit.
(iii) On the basis of Capitalisation of Super Profit.
(iv) On the basis of Capitalisation
of Average profit.
Information:
(a) Average Capital Employed is `
6,00,000.
(b) Net Profit/(Loss) of the firm for the last three years ended are:
31st March, 2023 − `
2,00,000, 31st March, 2022 − `
1,80,000, and 31st March, 2021 − `
1,60,000.
(c) Normal Rate of Return in similar business is 10%.
(d) Remuneration of `
1,00,000 to partners is to be taken as charge against profit.
(e) Assets of the firm (excluding goodwill, fictitious assets and non-trade
investments) is `
7,00,000 whereas Partners' Capital is `
6,00,000 and Outside Liabilities `
1,00,000.
Answer:
(i) Goodwill
|
=Average Profit×No. of years' purchase
=80,000×3= ` 2,40,000
|
(ii) Goodwill
|
=Super Profit×No. of years' purchase
=20,000×3= ` 60,000
|
(iii) Goodwill
|
=Super Profit×100÷Normal Rate of Return
=20,000×100/10= ` 2,00,000
|
(iv) Goodwill
|
=Capitalised Value-Net Assets
=8,00,000-6,00,000= ` 2,00,000
|
Working Notes:
WN1: Calculation
of Average and Super Profits
Average Profit=Total Profits of past years given/No. of Years
=2,00,000+1,80,000+1,60,000/3
= ` 1,80,000,
Average Profit (Adjusted) = ` 1,80,000 -
1,00,000 (Remuneration to partners)
= ` 80,000
Normal Profit=Capital Employed×Normal Rate of Return/100
=6,00,000×10/100= ` 60,000
Super Profit=Average Profit (Adjusted)-Normal Profit
=80,000-60,000= ` 20,000
WN2: Calculation of Capital Employed
Capital Employed=Total Assets-Outside Liabilities
=7,00,000-1,00,000
= ` 6,00,000
Ts Grewal Solution 2023-2024
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Class 12 / Volume – I