# Double
Entry Book Keeping Ts Grewal Volume 1 2021-2022

# Solutions
for Class 12 Commerce Accountancy

# Chapter
3 - Goodwill: Nature And Valuation

#### Page No 3.28:

#### Question 1:

#### Goodwill is to be valued at three years'
purchase of four years' average profit. Profits for last four years ending on
31st March of the firm were:

2018 − `12,000; 2019 − `18,000; 2020 − `16,000; 2021− `14,000.

Calculate amount of Goodwill.

#### Answer:

#### Goodwill= Average profit × no. of purchases years’

Average profit = total profit of
past given years÷number of years

Average profit
=12,000+18,000+16,000+14,000÷4=15,000

**Number of years’
purchase = 3**

Goodwill = Average profit × no. of
purchases years’

Goodwill = 15,000 × 3 = 45,000

#### Page No 3.28:

#### Question 2:

#### Profits for the five years ending on 31st
March, are as follows:

Year 2017 − `4,00,000; Year 2018 − `3,98,000; Year 2019 − `4,50,000; Year 2020 − `4,45,000 and Year 2021
− `5,00,000.

Calculate goodwill of the firm on the basis of 4 years' purchase of 5 years'
average profit.

#### Answer:

#### Goodwill=Average Profits × Number of Years' Purchase

Average Profits =Total Profits÷
Number of Years

Average Profits
= 4,00,000+3,98,000+4,50,000+4,45,000+5,00,000÷5

Average Profits
= 21,93,000÷5 = `4,38,600

Goodwill =4,38,600×4= `17,54,400

#### Page No 3.28:

#### Question 3:

#### Calculate value of goodwill on the basis of
three years' purchase of average profit of the preceding five years which were
as follows:

Year |
2021 |
2020 |
2019 |
2018 |
2017 |

Profits (
`) |
8,00,000 |
15,00,000 |
18,00,000 |
4,00,000 (Loss) |
13,00,000 |

#### Answer:

**Goodwill= Average profit × No. of purchases years’**

Average profit = total
profit of past given years÷number of years

Average profit =8,00,000+15,00,000+18,00,000-4,00,000
(Loss)+ 13,00,000÷5=50,00,000

Average profit =50,00,000÷5=10,00,000

**Number
of years’ purchase = 3**

Goodwill= Average profit ×
no. of purchases years’

Goodwill= 10,00,000 ×
3=30,00,000

**Page
No 3.28:**

#### Question 4:

Annu, Baby and Chetan are partners in a firm sharing profits and losses equally. They decide to take Deep into partnership from 1st April, 2021 for 1÷5th share in the future profits. For this purpose, goodwill is to be valued at 100% of the average annual profits of the previous three or four years, whichever is higher. The annual profits for the purpose of goodwill for the past four years were:

Year Ended |
Profit (
`) |

31st March, 2021 |
2,88,000; |

31st March, 2020 |
1,81,800; |

31st March, 2019 |
1,87,200; |

31st March, 2018 |
2,53,200. |

Calculate
the value of goodwill.

#### Answer:

Average Profits of Previous three years= 2,88,000+1,81,800+1,87,200÷3= ` 2,19,000

Average Profits of Previous four years= 2,88,000+1,81,800+1,87,200+2,53,200÷4=
` 2,27,550

Since, the average profits of previous four years is greater than the average
profits of previous three years.

Hence, Goodwill = 100% of Average Profits of Previous four years = ` 2,27,550

**Page
No 3.28:**

#### Question 5:

#### Calculate the value of firm's goodwill on the
basis of one and half years' purchase of the average profit of the last three
years. The profit for first year was ` 1,00,000, profit for the second year was
twice the profit of the first year and for the third year profit was one and
half times of the profit of the second year.

#### Answer:

Goodwill=Average Profit
× No. of years' purchase

=2,00,000 ×1.5= ` 3,00,000

__Working Notes:__

* WN: *1

__Calculation of Profits of last three years__
Year |
Profit |

1 |
1,00,000 |

2 |
2,00,000 (1,00,000×2) |

3 |
3,00,000 (2,00,000×1.5) |

Total Profit |
6,00,000 |

* WN: *2

__Calculation of Average Profit__

*Average Profit=Total Profits for past given years÷Number of Years*

*Average Profit =6,00,000÷3=** ` 2,00,000*

**Click on Below link for more questions Of Volume-1 of 12th**