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प्रश्न
Average profit of GS & Co. is ₹ 50,000 per year. Average capital employed in the business is ₹ 3,00,000. If the normal rate of return on capital employed is 10%, calculate goodwill of the firm by:
(i) Super Profit Method at three years' purchase; and
(ii) Capitalisation of Super Profit Method.
उत्तर
(i) Goodwill = Super Profit x No. of Years Purchase
= 20,000 x 3 = Rs. 60,000
(ii) Goodwill = Super Profit x `100/"Normal Rate of Return"`
= 20,000 x `100/10` = Rs. 2,00,000
Working Notes:
WN1: Calculation of Super Profits
Average Profit = `"Total Profits for past given years"/"No. of Years"`
= Rs. 50,000
Normal Profit = Capital Employed x `"Normal Rate of Return"/100`
= 3,00,000 x `10/100` = Rs. 30,000
Super Profit = Average Profit - Normal Profit
= 50,000 - 30,000 = Rs. 20,000.
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संबंधित प्रश्न
Explain various methods of valuation of goodwill.
Goodwill is to be valued at three years' purchase of four years' average profit. Profits for last four years ending on 31st March of the firm were:
2016 − ₹ 12,000; 2017 − ₹ 18,000; 2018 − ₹ 16,000; 2019 − ₹ 14,000.
Calculate amount of Goodwill.
Calculate value of goodwill on the basis of three years' purchase of average profit of the preceding five years which were as follows:
| Year | 2018-19 | 2017-18 | 2016-17 | 2015-16 | 2014-15 |
| Profits (₹) | 8,00,000 | 15,00,000 | 18,00,000 | 4,00,000 (Loss) |
13,00,000 |
Calculate the goodwill of a firm on the basis of three years' purchase of the weighted average profit of the last four years. The appropriate weights to be used and profits are:
| Year | 2015-16 | 2016-17 | 2017-18 | 2018-19 |
| Profits (₹) | 1,01,000 | 1,24,000 | 1,00,000 | 1,40,000 |
| Weights | 1 | 2 | 3 | 4 |
On a scrutiny of the accounts, the following matters are revealed:
- On 1st December, 2017, a major repair was made in respect of the plant incurring ₹ 30,000, which was charged to revenue. The said sum is agreed to be capitalised for goodwill calculation subject to adjustment of depreciation of 10% p.a. on the Reducing Balance Method.
- The closing stock for the year 2016-17 was overvalued by ₹ 12,000.
- To cover management costs, an annual charge of ₹ 24,000 should be made for the purpose of goodwill valuation.
- On 1st April, 2016, a machine having a book value of ₹ 10,000 was sold for ₹ 11,000 but the proceeds were wrongly credited to the Profit and Loss Account. No effect has been given to rectify the same. Depreciation is charged on machine @ 10% p.a. on reducing balance method.
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 year
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.
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%.
On 1st April, 2019, an existing firm had assets of ₹ 75,000 including cash of ₹ 5,000. Its creditors amounted to ₹ 5,000 on that date. The firm had a Reserve of ₹ 10,000 while Partners' Capital Accounts showed a balance of ₹ 60,000. If Normal Rate of Return is 20% and goodwill of the firm is valued at ₹ 24,000 at four years' purchase of super profit, find average profit per year of the existing firm.
Average profit of the firm is ₹ 2,00,000. Total assets of the firm are ₹ 15,00,000 whereas Partners' Capital is ₹ 12,00,000. If normal rate of return in a similar business is 10% of the capital employed, what is the value of goodwill by Capitalisation of Super Profit?
Ajeet and Baljeet are partners in a firm. Their capitals are ₹ 9,00,000 and ₹ 6,00,000 respectively. During the year ended 31st March, 2019 the firm earned a profit of ₹ 4,50,000. Assuming that the normal rate of return is 20%, calculate value of goodwill of the firm:
(i) By Capitalisation Method; and
(ii) By Super Profit Method if the goodwill is valued at 2 years' purchase of super profit.
A firm earned an average profit of ₹ 3,00,000 during the last few years. The normal rate of return of the industry is 15%. The assets of the business were ₹ 17,00,000 and its liabilities were ₹ 2,00,000. Calculate the goodwill of the firm by capitalisation of average profits.
Super profit is the difference between _____________.
When the average profit is ₹ 25,000 and the normal profit is ₹ 15,000, super profit is __________.
From the following information, calculate the value of goodwill on the basis of 3 years purchase of average profits of last four years.
| Year | Result | Amount (₹) |
| 2015 | Profit | 5,000 |
| 2016 | Profit | 8,000 |
| 2017 | Loss | 3,000 |
| 2018 | Profit | 6,000 |
When we use the super profit method for goodwill Valuation:
What are the methods of valuation of goodwill?
The following steps are of which method of goodwill:
- Calculate the average profit.
- Calculate the normal profit on the capital employed on the basis of the normal rate of return.
- Calculate the super-profits by deducting normal profit from the average profits, and
- Calculate goodwill by multiplying the super-profits by the given number of years' purchase.
The books of a business showed that the capital employed on December 31, 2006, Rs. 5,00,000 and the profits for the last five years were: 1997 Rs. 40,000: 1998 - Rs. 50,000; 1999 - Rs. 55,000; 2000 - Rs. 70,000 and 2001 - Rs. 85,000. You are required to find out the value of goodwill based on 3 years of the purchase of the super-profits of the business, given that the normal rate of return is 10%.
