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:
2016 − ` 12,000; 2017 − ` 18,000; 2018 − ` 16,000; 2019 − ` 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 2015 − ` 4,00,000; Year 2016 −
` 3,98,000; Year 2017 −
` 4,50,000; Year 2018 −
` 4,45,000 and Year 2019
− ` 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 ProfitsNumber of Years=4,00,000+3,98,000+4,50,000+4,45,000+5,00,0005=21,93,0005= ` 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 |
2018-19 |
2017-18 |
2016-17 |
2015-16 |
2014-15 |
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 =50,00,000/510,00,000
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:
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^{st} Year |
1,00,000 |
2^{nd} Year |
2,00,000 (1,00,000×2) |
3^{rd} Year |
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 yearsNumber of Years
Average Profit =6,00,000/3= ` 2,00,000
Page No 3.28:
Question 5:
Purav and Purvi
are partners in a firm sharing profits and losses in the ratio of 2 : 1. They decide to take Parv
into partnership for 1/4th share on 1st April, 2019. For this purpose, goodwill
is to be valued at four times the average annual profit of the previous four or
five years, whichever is higher. The agreed profits for goodwill purpose of the
past five years are:
Year |
2014-15 |
2015-16 |
2016-17 |
2017-18 |
2018-19 |
Profits (
`) |
14,000 |
15,500 |
10,000 |
16,000 |
15,000 |
Calculate the value of goodwill.
Answer:
Calculation of Average Profit for Five Years
Year |
Profit |
2014 – 15 |
14,000 |
2015 – 16 |
15,500 |
2016 – 17 |
10,000 |
2017 – 18 |
16,000 |
2018 – 19 |
15,000 |
Total Profit |
70,500 |
Average Profit for Five Years=70,500/5=14,100
Calculation of Average Profit for Four Years
Year |
Profit |
2015 – 16 |
15,500 |
2016 – 17 |
10,000 |
2017 – 18 |
16,000 |
2018 – 19 |
15,000 |
Total Profit |
56,500 |
Average Profit
for Five Years=56,500/4=14,125
Average Profit of four years is
taken to compute the value of goodwill of the firm. This is because Average
Profit of four years is more than the Average Profit of five years.
Goodwill= Average profit × no. of
purchases years’
Goodwill=
14125 ×4 =56,500
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