Volume-1 | Chapter- 3 | | Question: 36 to 40 | Ts grewal solution 2019-20

Page No 3.34:

Question 36:

Ayub and Amit are partners in a firm and they admit Jaspal into partnership w.e.f. 1st April, 2019. They agreed to value goodwill at 3 years' purchase of Super Profit Method for which they decided to average profit of last 5 years. The profits for the last 5 years were:

Year Ended	Net Profit ( `)
31st March, 2015	1,50,000
31st March, 2016	1,80,000
31st March, 2017	1,00,000	(Including abnormal loss of ` 1,00,000)
31st March, 2018	2,60,000	(Including abnormal gain (profit) of ` 40,000)
31st March, 2019	2,40,000

The firm has total assets of ` 20,00,000 and Outside Liabilities of ` 5,00,000 as on that date. Normal Rate of Return in similar business is 10%.
Calculate value of goodwill.

Answer:

Goodwill

=Super Profit×No. of Years' Purchase

=48,000×3= ` 1,44,000

Working Notes:

WN: 1 Calculation of Normal Profits:

Year	Profit/(Loss) ( `)	Adjustment	Normal Profit ( `)
31 March, 2015	1,50,000	-	1,50,000
31 March, 2016	1,80,000	-	1,80,000
31 March, 2017	1,00,000	1,00,000	2,00,000
31 March, 2018	2,60,000	(40.000)	2,20,000
31 March, 2019	2,40,000	-	2,40,000
		Total Profit	9,90,000

WN2: Calculation of Super Profits

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

Average profit =9,90,000/5=1,98,000

Normal profit = Capital employed×Rate of return/100

= 15,00,000×10/100=1,50,000

Super profit = Actual profit - Normal profit

= 1,98,000 – 1,50,000=48,000

WN3: Calculation of Capital Employed

Capital Employed

=Total Assets-Outside Liabilities

=20,00,000-5,00,000= `15,00,000

Page No 3.34:

Question 37:

From the following information, calculate value of goodwill of the firm by applying Capitalisation Method: Total Capital of the firm ` 16,00,000.
Normal rate of return 10%. Profit for the year ` 2,00,000.

Answer:

Goodwill= Capitalised value – Actual capital

Capitalised value of goodwill= profit ×100/ Normal rate of return

Capitalised value of goodwill= 2,00,000×100/ 10=20,00,000

Total Capital = ` 16,00,000

Goodwill=20,00,000-16,00,000=4,00,000

Page No 3.34:

Question 38:

A business has earned average profit of ` 1,00,000 during the last few years. Find out the value of goodwill by capitalisation method, given that the assets of the business are ` 10,00,000 and its external liabilities are ` 1,80,000. The normal rate of return is 10%.

Answer:

Goodwill=Capitalised Value of Average Profits-Actual Capital EmployedCapitalised Value of Average Profit=Average Profit×100Nominal Rate of Return=1,00,000×10010=10,00,000Actual Capital Employed=10,00,000-1,80,000=8,20,000Goodwill=10,00,000-8,20,000= ` 1,80,000

Page No 3.35:

Question 39:

Form the following particulars, calculate value of goodwill of a firm by applying Capitalisation of Average Profit Method:
(i) Profits of last five consecutive years ending 31st March are: 2019 − ` 54,000; 2018 − ` 42,000; 2017 − ` 39,000; 2016 − ` 67,000 and 2015 − ` 59,000.
(ii) Capitalisation rate 20%.
(iii) Net assets of the firm ` 2,00,000.

Answer:

Goodwill

Average profit

= Capitalised value – Actual capital

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

=54,000+42,000+39,000+67,000+59,000/5

=52,200

Capitalised value of goodwill

= Average profit ×100/ Normal rate of return

=52,200 ×100/20

=2,61,000

Goodwill

= Capitalised value – Actual capital

=2,61,000-2,00,000

=61,000

Page No 3.35:

Question 40:

A business has earned average profit of ` 4,00,000 during the last few years and the normal rate of return in similar business is 10%. Find value of goodwill by:
(i) Capitalisation of Super Profit Method, and
(ii) Super Profit Method if the goodwill is valued at 3 years' purchase of super profits.
Assets of the business were ` 40,00,000 and its external liabilities ` 7,20,000.