Advertisements
Advertisements
प्रश्न
A business has earned average profits of Rs. 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 Rs. 10,00,000 and its external liabilities are Rs. 1,80,000. The normal rate of return is 10%?
उत्तर
Capital Employed = Assets − External Liabilities
= 10,00,000 − 1,80,000
= Rs 8,20,000
Normal Profit = Capital Employed × `"Normal Rate of Return"/100`
= 8,20,000 x `10/100`
= Rs 82,000
Super Profit = Actual Profit − Normal Profit
= 1,00,000 − 82,000
= Rs 18,000
Goodwill = Super Profit × `100/"Normal Rate of Return"`
= 18,000 x `100/10`
= Rs 1,80,000
Alternative Method
Capitalised Value = Actual Profit × `100/"Normal Rate of Return"`
Capitalised value = 1,00,000 x `100/10`
= Rs 1,00,000
Goodwill = Capitalised Value − Capital Employed
= 10,00,000 − 8,20,000
= Rs 1,80,000.
APPEARS IN
संबंधित प्रश्न
Explain various methods of valuation of goodwill.
Annu, Baby and Chetan are partners in a firm sharing profits and losses equally. They decide to take Deep into partnership from 1st April, 2019 for 1/5th share in the future profits. For this purpose, goodwill is to be valued at 100% of the average annual profits of the previous three or four years, whichever is higher. The annual profits for the purpose of goodwill for the past four years were:
| Year Ended | Profit (₹) |
| 31st March, 2019 | 2,88,000; |
| 31st March, 2018 | 1,81,800; |
| 31st March, 2017 | 1,87,200; |
| 31st March, 2016 | 2,53,200. |
Calculate the value of goodwill.
Abhay, Babu, and Charu are partners sharing profits and losses equally. They agree to admit Daman for an equal share of profit. For this purpose, the value of goodwill is to be calculated on the basis of four years' purchase of the average profit of the last five years. These profits for the year ended 31st March were:
| Year | 2015 | 2016 | 2017 | 2018 | 2019 |
| Profit/(Loss) (₹) | 1,50,000 | 3,50,000 | 5,00,000 | 7,10,000 | (5,90,000) |
On 1st April 2018, a car costing ₹ 1,00,000 was purchased and debited to Travelling Expenses Account, on which depreciation is to be charged @ 25%. The interest of ₹ 10,000 on Non-trade Investments is a credit to income for the year ended 31st March 2018 and 2019.
Calculate the value of goodwill after adjusting the above.
Sumit purchased Amit's business on 1st April, 2019. Goodwill was decided to be valued at two years' purchase of average normal profit of last four years. The profits for the past four years were:
| Year Ended | 31st March, 2016 | 31st March, 2017 | 31st March, 2018 | 31st March, 2019 |
| Profits (₹) | 80,000 | 145,000 | 160,000 | 200,000 |
Books of Account revealed that:
(i) Abnormal loss of ₹ 20,000 was debited to Profit and Loss Account for the year ended 31st March, 2016.
(ii) A fixed asset was sold in the year ended 31st March, 2017 and gain (profit) of ₹ 25,000 was credited to Profit and Loss Account.
(iii) In the year ended 31st March, 2018 assets of the firm were not insured due to oversight. Insurance premium not paid was ₹ 15,000.
Calculate the value of goodwill.
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.
Average profit earned by a firm is ₹ 80,000 which includes undervaluation of stock of ₹ 8,000 on an average basis. The capital invested in the business is ₹ 8,00,000 and the normal rate of return is 8%. Calculate goodwill of the firm on the basis of 7 times the super profit.
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 at `2 1/2` years' purchase of super profits.
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.
A firm earns profit of ₹ 5,00,000. Normal Rate of Return in a similar type of business is 10%. The value of total assets (excluding goodwill) and total outsiders' liabilities as on the date of goodwill are ₹ 55,00,000 and ₹ 14,00,000 respectively. Calculate value of goodwill according to Capitalisation of Super Profit Method as well as Capitalisation of Average Profit Method.
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 profit.
Assets of the business were ₹ 40,00,000 and its external liabilities ₹ 7,20,000.
From the following information, calculate value of goodwill of the firm:
(i) At three years' purchase of Average Profit.
(ii) At three years' purchase of Super Profit.
(iii) On the basis of Capitalisation of Super Profit.
(iv) On the basis of Capitalisation of Average profit.
Information:
(a) Average Capital Employed is ₹ 6,00,000.
(b) Net Profit/(Loss) of the firm for the last three years ended are:
31st March, 2018 − ₹ 2,00,000, 31st March, 2017 − ₹ 1,80,000, and 31st March, 2016 − ₹ 1,60,000.
(c) Normal Rate of Return in similar business is 10%.
(d) Remuneration of ₹ 1,00,000 to partners is to be taken as charge against profit.
(e) Assets of the firm (excluding goodwill, fictitious assets and non-trade investments) is ₹ 7,00,000 whereas Partners' Capital is ₹ 6,00,000 and Outside Liabilities ₹ 1,00,000.
Super profit is the difference between _____________.
Which of the following is true?
The total capitalised value of a business is ₹ 1,00,000; assets are ₹ 1,50,000 and liabilities are ₹ 80,000. The value of goodwill as per the capitalisation method will be ___________.
From the following information, find out the value of goodwill by capitalisation method:
- Average profit ₹ 20,000
- Normal rate of return 10%
- Tangible assets of the firm ₹ 2,20,000
- Liabilities of the firm ₹ 70,000.
What is super profit?
Goodwill is to be calculated at one and half years’ purchase of average profit of last 5 years. The firm earned profits during 3 years as ₹ 20,000 ₹ 18,000 and ₹ 9,000 and suffered losses of ₹ 2,000 and ₹ 5,000 in the last 2 years. The amount of goodwill will be:
What is the need for the valuation of goodwill?
Under this method, the value of goodwill is ascertained by deducting the actual capital employed (net assets) in the business from the capitalized value of the average profits on the basis of the normal rate of return.
