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

#### 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.

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

#### 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.

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

#### 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.

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

#### 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.

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

#### 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.

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