Volume-1 | Chapter- 3 | | Question: 36 to 40 | Ts grewal solution 2019-20 | Class-12th

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.

Answer:

Average Profit  ` 4,00,000
Normal Rate of Return – 10%

(i) Goodwill by Capitalisation of Super profit

goodwill

=super profit ×100/ normal rate of return

Capital employed

= assets – external liabilities

=40,00,000-7,20,000
=32,80,000

 

Normal profit

 

= Capital employed×Normal rate of return/100

=32,80,000×10/100

Super

 

Profit = Actual Profit – Normal Profit
= 4,00,000 – 3,28,000

=  ` 72,000

Goodwill

 

=72,000×100/10

= ` 7,20,000


(ii) Super Profit Method if the goodwill is valued at 3 years’ purchase of super profits

Goodwill

 

= Super Profit ×Purchases

=72,000×3

=2,16,000


Therefore, Goodwill is valued at  ` 2,16,000