# Chapter 3 - Goodwill: Nature And Valuation

#### Question 16:

Gupta and Bose had a firm in which they had invested  ` 50,000. On an average, the profits were  ` 16,000. The normal rate of return in the industry is 15%. Goodwill is to be valued at four years' purchase of profits in excess of profits @ 15% on the money invested. Calculate the  value goodwill.

Goodwill= Super profit × no. of purchases years’

Normal profit = Capital employed×Rate of return/100

Normal profit = 50,000×15/100=7,500

Actual profit =16,000

Super profit = Actual profit - Normal profit

Super profit = 16,000 – 7,500=8,500

Number of years’ purchase = 4

Goodwill =8,500×4=34,000

#### Question 17:

The total capital of the firm of Sakshi, Mehak and Megha is  ` 1,00,000 and the market rate of interest is 15%. The net profits for the last 3 years were  ` 30,000;  ` 36,000 and  ` 42,000. Goodwill is to be valued at 2 years' purchase of the last 3 years' super profits. Calculate the goodwill of the firm.

Goodwill= Super Profit × Number of Years' Purchase

Super Profits = Average Profit - Normal Profit Average Profits = Total ProfitsNumber of Years=30,000+36,000+42,000/3= ` 36,000

Normal Profits = Capital Employed × Normal Rate of Return=1,00,000×15/100=15,000

Super Profits=36,000-15,000=21,000

Goodwill=21,000×2= ` 42,000

#### Question 18:

A business earned an average profit of ` 8,00,000 during the last few years. The normal rate of profit in the similar type of business is 10%. The total value of assets and liabilities of the business were  ` 22,00,000 and  ` 5,60,000 respectively. Calculate the value of goodwill of the firm by super profit method if it is valued at 2 1/2 years’ purchase of super profits.

Average profit =8,00,000

Normal profit = Capital employed×Rate of return/100

Normal profit = 16,40,000×10/100=1,64,000

Capital employed = Total assets - Outside liabilities

Capital employed = 22,00,000- 5,60,000=16,40,000

Super profit = Actual profit - Normal profit

Super profit =8,00,000-1,64,000=6,36,000

Goodwill= Super profit × no. of purchases years’

Number of years’ purchase = 2.5

Goodwill=  6,36,000×2.5 =15,90,000

#### Question 19:

Average net profit expected in future by XYZ firm is  ` 36,000 per year. Average capital employed in the business by the firm is  ` 2,00,000. The normal rate of return from capital invested in this class of business is 10%. Remuneration of the partners is estimated to be  ` 6,000 p.a.  Calculate the value of goodwill on the basis of two years' purchase of super profit.

Goodwill= Super profit × no. of purchases years’

Normal profit = Capital employed×Rate of return/100

Normal profit = 2,00,000×10/100=20,000

Actual exceeded profit =30,000-6000=30,000

Super profit = Actual profit - Normal profit

Super profit = 30,000 – 20,000=10,000

Number of years’ purchase = 2

Goodwill =10,000×2=20,000

#### Question 20:

A partnership firm earned net profits during the last three years ended 31st March, as follows:

2019  `17,000; 2020 −  ` 20,000; 2021 −  ` 23,000.
The capital investment in the firm throughout the above-mentioned period has been  ` 80,000. Having regard to the risk involved, 15% is considered to be a fair return on the capital. Calculate value of goodwill on the basis of two years' purchase of average super profit earned during the above-mentioned three years.

Goodwill= Super profit × no. of purchases years’

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

Average Actual profit =17,000+20,000+20,000/3=20,000

Normal profit = Capital employed×Rate of return/100

Normal profit = 80,000×15/100=12,000

Super profit = Actual profit - Normal profit

Super profit = 20,000 – 12,000=8,000

Number of years’ purchase = 2

Goodwill= 8,000 × 2=16,000

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

## Chapter-3: Goodwill: Nature and Valuation | 2021-2022

From Question No. 1 to 5

From Question No. 6 to 10

From Question No. 11 to 15

From Question No. 16 to 20

From Question No. 21 to 25

From Question No. 26 to 30

From Question No. 31 to 35

From Question No. 36 to 39