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

#### 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.

 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

#### 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.

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

#### 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%.

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

#### 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.

Goodwill

Average profit

#### =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

#### 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.

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