Volume-1 | Chapter- 3 | | Question: 26 to 30 | Ts grewal solution 2019-20 | Class-12th

Page No 3.32:

Question 26:

A partnership firm earned net profits during the last three years ended 31st March, as follows: 2017 −  ` 17,000; 2018 −  ` 20,000; 2019 −  ` 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.

Answer:

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=20000

Normal profit = Capital employed×Rate of return/100

Normal profit = 20,000×15/100=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

 

Page No 3.32:

Question 27:

A partnership firm earned net profits during the past three years as follows:

Year ended

31st March, 2019

31st March, 2018

31st March, 2017

Net Profit ( `)

2,30,000

2,00,000

1,70,000

Capital investment in the firm throughout the above-mentioned period has been  ` 4,00,000. Having regard to the risk involved, 15% is considered to be a fair return on the capital. The remuneration of the partners during this period is estimated to be  ` 1,00,000 p.a.
Calculate value of goodwill on the basis of two years' purchase of average super profit earned during the above-mentioned three years.

Answer:

Goodwill= Super profit × no. of purchases years’

Normal profit = Capital employed×Rate of return/100

Normal profit = 4,00,000×15/100=60,000

Year

Profit before Partners’ Remuneration

Partners’ Remuneration

=

Actual Profit after Remuneration

2017

1,70,000

1,00,000

=

70,000

2018

2,00,000

1,00,000

=

1,00,000

2019

2,30,000

1,00,000

=

1,30,000

 

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

Average actual profit after remuneration =70,000+1,00,000+1,30,000/3=1,00,000

Super profit = 1,00,000 – 60,000=40,000

Number of years’ purchase = 2

Goodwill=40,000×2=80,000

 

Page No 3.33:

Question 28:

Ideal Marketing earned an average profit of  ` 4,00,000 during the last five years. Normal rate of return on capital employed is 10%. Balance Sheet of the firm as at 31st March, 2019 was as follows:

 

Liabilities

Amount
(
`)

Assets

Amount
(
`)

Capital A/cs:

 

 

Land and Building

10,00,000

Shyam

5,00,000

 

Furniture

2,00,000

Sunder

5,00,000

10,00,000

Investments

1,00,000

Current A/cs:

 

Sundry Debtors

5,00,000

Shyam

2,00,000

 

Bills Receivable

50,000

Sunder

2,00,000

4,00,000

Closing Stock

3,00,000

Reserves

3,40,000

Cash in Hand

50,000

Sundry Creditors

4,00,000

Cash at Bank

1,00,000

Bills Payable

1,00,000

 

 

Outstanding Expenses

60,000

 

 

 

23,00,000  

23,00,000 

 

 

 

 


Calculate the value of goodwill, if it is valued at three years' purchase of Super Profits.

Answer:

Average Profits= `4,00,000

Capital Employed=Total Assets - Non-Trade Investments- Outside Liabilities= `(23,00,000-1,00,000-5,60,000)= `16,40,000

Normal Profits=Capital Employed×Normal Rate of Return100= `16,40,000×10100= `1,64,000

Super Profits=Average Profits-Normal Profits= `(4,00,000-1,64,000)= `2,36,000

Goodwill=Super Profits × No. of years of Purchase= `(2,36,000×3)= `7,08,000

Page No 3.33:

Question 29:

Varuna and Karuna are partners for equal shares. They admit Lata into partnership for 1/4th share. It was agreed to value goodwill of the firm at 4 years' purchase of super profit. Normal rate of return is 15% of the capital employed. Average profit of the firm is  ` 4,00,000. Balance Sheet of the firm as at 31st March, 2019 was as follows:

 

Liabilities

Amount
(
`)

Assets

Amount
 ( `)

Capital A/cs:

 

 

Furniture

4,00,000

Varuna

5,00,000

 

Computers

3,00,000

Karuna

5,00,000

10,00,000

Electrical Fittings

1,00,000

Long-term Loan

5,50,000

Investments (Trade)

2,00,000

Sundry Creditors

2,00,000

Stock

3,00,000

Outstanding Expenses

50,000

Sundry Debtors

3,00,000

Advances from Customers

1,50,000

Bills Receivable

50,000

 

 

Cash in Hand

50,000

 

 

Cash at Bank

2,00,000

 

 

Deferred Revenue Expenditure:

 

 

 

Advertisement Suspense

50,000

 

19,50,000 

 

19,50,000 

 

 

 

 

 

Calculate the value of goodwill.

Answer:

Average Profits= `4,00,000Capital Employed=Total Assets-Fictitious Assets-Current Liabilities= `(19,50,000-50,000-4,00,000)= `15,00,000Normal Profits=Capital Employed×Normal Rate of Return100= `15,00,000×15100= `2,25,000Super Profits=Average Profits - Normal Profits= `(4,00,000-2,25,000)= `1,75,000Goodwill=Super Profits×No. of Years of Purchase= `(1,75,000×4)= `7,00,000

Page No 3.33:

Question 30:

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 at212 years' purchase of super profits.

Answer:

Average profit =80,000

Normal profit = Capital employed×Rate of return/100

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

Capital employed = total assests- 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