12th Ts grewal 2021-22 Question 11 to 15 Goodwill: Nature and Valuation

Double Entry Book Keeping Ts Grewal Volume 1 2021-2022

Solutions for Class 12 Commerce Accountancy

Chapter 3 - Goodwill: Nature And Valuation

 

Page No 3.29:

Question 11:

Bhaskar and Pillai are partners sharing profits and losses in the ratio of 3 : 2. They admit Kanika into partnership for 1/4th share in profit. Kanika brings in her share of goodwill in cash. Goodwill for this purpose is to be calculated at two years' purchase of the average normal profit of past three years. Profits of the last three years ended 31st March, were:
2019 - Profit 
` 50,000 (including profit on sale of assets  ` 5,000).
2020 - Loss 
` 20,000 (including loss by fire  ` 30,000).
2021 - Profit 
` 70,000 (including insurance claim received  ` 18,000 and interest on investments and Dividend received  ` 8,000).
Calculate the value of goodwill. Also, calculate goodwill brought in by Kanika.

Answer:

Normal Profits for the year ended 31st March, 2019= (Total Profits-Profit on Sale of Assets)= `(50,000-5,000)= `45,000


Normal Profits for the year ended 31st March, 2020= (Loss by fire - Total Loss)=
`(20,000-30,000)=  `10,000


Normal Profit for the year ended 31st March, 2021= (Total Profit - Insurnace Claim Received-Interest on Invetsment -Dividend Received)                                                                          

= `(70,000-18,000-8,000)= `44,000


Average Profits=
Total Normal Profits from the year ended 31st March,2019 to 31st March, 2021/3

= `45,000+10,000+44,000/3

= `33,000


Goodwill=Average Profits for the last three years × No. of years of Purchase

Goodwill= `(33,000×2)= `66,000

Goodwill= `66,000

Kanika's Share of Goodwill=
`66,000×14= `16,500

 



Page No 3.30:

Question 12:

Sumit purchased Amit's business on 1st April, 2021. Goodwill was decided to be valued at two years' purchase of average normal profit of last four years. The profits for the past four years were:

Year Ended

31st March, 2018

31st March, 2019

31st March, 2020

31st March, 2021

Profits ( `)

80,000

1,45,000

1,60,000

2,00,000

Books of Account revealed that:
(i) Abnormal loss of
 ` 20,000 was debited to Profit and Loss Account for the year ended 31st March, 2018.
(ii) A fixed asset was sold in the year ended 31st March, 2019 and gain (profit) of
 ` 25,000 was credited to Profit and Loss Account.
(iii) In the year ended 31st March, 2020 assets of the firm were not insured due to oversight. Insurance premium not paid was
 ` 15,000.
Calculate the value of goodwill.

Answer:

Goodwill=Average Profit×No. of years' purchase               

Goodwill =1,41,250×2= ` 2,82,500


Working Notes:

WN: 1 Calculation of Normal Profits

Year

Profit/(Loss) ( `)

Adjustment

Normal Profit ( `)

31 March, 2018

80,000

20,000

1,00,000

31 March, 2019

1,45,000

(25,000)

1,20,000

31 March, 2020

1,60,000

(15,000)

1,45,000

31 March, 2021

2,00,000

-

2,00,000

 

5,65,000

 

WN: 2 Calculation of Average Profit
Average Profit=Total Profit for past given years ÷ Number of Years 

Average Profit=5,65,000/4= ` 1,41,250



Page No 3.30:

Question 13:

Profits of a firm for the year ended 31st March for the last five years were:

Year Ended

31st March, 2017

31st March, 2018

31st March, 2019

31st March, 2020

31st March, 2021

Profits ( `)

20,000

24,000

30,000

25,000

18,000

Calculate value of goodwill on the basis of three years' purchase of Weighted Average Profit after assigning weights 1, 2, 3, 4 and 5 respectively to the profits for years ended 31st March, 2017, 2018, 2019, 2020 and 2021.

Answer:

Year

Profit

×

Weight

=

Product

2017

20,000

×

1

=

20,000

2018

24,000

×

2

=

48,000

2019

30,000

×

3

=

90,000

2020

25,000

×

4

=

1,00,000

2021

18,000

×

5

=

90,000

Total

 

 

15

 

3,48,000

 

 

 

 

 

 

Weighted Average profit = total profit of past given years/ Total of Weighted

 Weighed Average profit =3,48,000/15=23,200

Number of years’ purchase = 3

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

Goodwill=  23,200×3 =69,600



Page No 3.30:

Question 14:

Raman and Daman are partners sharing profits in the ratio of 60 : 40 and for the last four years they have been getting annual salaries of  ` 50,000 and  ` 40,000 respectively. The annual accounts have shown the following net profit before charging partners' salaries:
Year ended 31st March, 2019 − 
` 1,40,000; 2020 −  ` 1,01,000 and 2021 −  ` 1,30,000.
 On 1st April, 2021, Zeenu is admitted to the partnership for 1/4th share in profit (without any salary). Goodwill is to be valued at four years' purchase of weighted average profit of last three years (after partners' salaries); Profits to be weighted as 1 : 2 : 3, the greatest weight being given to the last year. Calculate the value of Goodwill.

Answer:

Year

Profits before charging Salary

( `)

Profits after charging Salary

( `)

Weights

Weighted Profits

( `)

31st March, 2019

1,40,000

1,40,000- 90,000= 50,000

1

50,000

31st March, 2020

1,01,000

1,01,000- 90,000= 11,000

2

22,000

31st March, 2021

1,30,000

1,30,000- 90,000= 40,000

3

1,20,000

Total

6

1,92,000

Weighted Average Profits=Total of Weighted Profits/Total Weights= `1,92,000/6= `32,000

Goodwill=Weighted Average Profits × No. of years of Purchase = `(32,000×4)=  `1,28,000

 



Page No 3.30:

Question 15: The capital of the firm of Anuj and Benu is `10,00,000 and the market rate of interest is 15%. Annual salary to the partners is `60,000 each. The profit for the last three years were `3,00,000, `3,60,000 and `4,20,000. Goodwill of the firm is to be valued on the basis of two years' purchase of last three years average super profit. Calculate the goodwill of the firm. (CBSE 2021)

Answer:

Average profit = Total profit / number of years

=3,00,000+360,000+4,20,000/3

=3,60,000

 

Normal Profit=Capital employed × Rate of return/100

Normal Profit=10,00,000 × 15/100

Normal Profit=1,50,000

 

Goodwill= Super profit × no. of purchases years’

Super profit = average profit- partners salary- normal profit × no. of purchases years’

=3,60,000-(60,000×2)-1,50,000×2 (Purchase year)

=90,000×2

=1,80,000