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प्रश्न
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.
उत्तर
- Goodwill = Average Profit x No. of Years' Purchase
= 80,000 x 3 = Rs. 2,40,000 - Goodwilll = Super Profit x No. of years' Purchase
= 20,000 x 3 = Rs. 60,000 - Goodwill = Super Profit x `100/"Normal Rate of Return"`
= 20,000 x `100/10` = Rs. 2,00,000 - Goodwill = Capitalised Value - Net Assets
= 8,00,000 - 6,00,000 = Rs. 2,00,000.
Working Notes:
WN1: Calculation of Average and Super Profits
Average Profit = `"Total Profits of past years given"/"No. of Years"`
= `[ 2,00,000 + 1,80,000 +1,60,000]/3` = Rs. 1,80,000
Average Profit (Adjustment) = Rs. 1,80,000 - 1,00,000 (Remuneration to Partners) = Rs. 80,000
Normal Profit = Capital Employed x `"Normal Rate of Return"/100`
= 6,00,000 x `10/100` = Rs. 60,000
Super Profit = Average Profit (Adjusted) - Normal Profit
= 80,000 - 60,000 = Rs. 20,000
WN2: Calculation of Capital Employed
Capital Employed = Total Assets - Outside Liabilities
= 7,00,000 - 1,00,000 = Rs. 6,00,000.
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संबंधित प्रश्न
Profits for the five years ending on 31st March, are as follows:
Year 2015 − ₹ 4,00,000; Year 2016 − ₹ 3,98,000; Year 2017 − ₹ 4,50,000; Year 2018 − ₹ 4,45,000 and Year 2019 − ₹ 5,00,000.
Calculate goodwill of the firm on the basis of 4 years' purchase of 5 years' average profit.
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.
Bhaskar and Pillai are partners sharing profits and losses in the ratio of 3 : 2. They admit Kanika into partnership for 1/4th share in profit. Kanika brings in her share of goodwill in cash. Goodwill for this purpose is to be calculated at two years' purchase of the average normal profit of past three years. Profits of the last three years ended 31st March, were:
2017 - Profit ₹ 50,000 (including profit on sale of assets ₹ 5,000).
2018 - Loss ₹ 20,000 (including loss by fire ₹ 30,000).
2019 - Profit ₹ 70,000 (including insurance claim received ₹ 18,000 and interest on investments and Dividend received ₹ 8,000).
Calculate the value of goodwill. Also, calculate goodwill brought in by Kanika.
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.
Dinesh and Mahesh are partners sharing profits and losses in the ratio of 3 : 2. They admit Ramesh into partnership for 1/4th share in profits. Ramesh brings in his share of goodwill in cash. Goodwill for this purpose shall be calculated at two years' purchase of the weighted average normal profit of past three years. Weights being assigned to each year 2017−1; 2018−2 and 2019−3. Profits of the last three years were:
2017 − Profit ₹ 50,000 (including profits on sale of assets ₹ 5,000).
2018 − Loss ₹ 20,000 (including loss by fire ₹ 35,000).
2019 − Profit ₹ 70,000 (including insurance claim received ₹ 18,000 and interest on investments and dividend received ₹ 8,000).
Calculate the value of goodwill. Also, calculate the goodwill brought in by Ramesh.
Manbir and Nimrat are partners and they admit Anahat into partnership. It was agreed to value goodwill at three years' purchase on Weighted Average Profit Method taking profits of last five years. Weights assigned to each year as 1, 2, 3, 4 and 5 respectively to profits for the year ended 31st March, 2015 to 2019. The profits for these years were: ₹ 70,000, ₹ 1,40,000, ₹ 1,00,000, ₹ 1,60,000 and ₹ 1,65,000 respectively.
Scrutiny of books of account revealed following information:
(i) There was an abnormal loss of ₹ 20,000 in the year ended 31st March, 2015.
(ii) There was an abnormal gain (profit) of ₹ 30,000 in the year ended 31st March, 2016.
(iii) Closing Stock as on 31st March, 2018 was overvalued by ₹ 10,000.
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.
Average net profit expected in future by XYZ firm is ₹ 36,000 per year. Average capital employed in the business by the firm is ₹ 2,00,000. The normal rate of return from capital invested in this class of business is 10%. Remuneration of the partners is estimated to be ₹ 6,000 p.a. Calculate the value of goodwill on the basis of two years' purchase of super profit.
Ideal Marketing earned an average profit of ₹ 4,00,000 during the last five years. Normal rate of return on capital employed is 10%. Balance Sheet of the firm as at 31st March, 2019 was as follows:
| Liabilities | Amount (₹) |
Assets | Amount (₹) |
|
| Capital A/cs: | Land and Building | 10,00,000 | ||
| Shyam | 5,00,000 | Furniture | 2,00,000 | |
| Sunder | 5,00,000 | 10,00,000 | Investments | 1,00,000 |
| Current A/cs: | Sundry Debtors | 5,00,000 | ||
| Shyam | 2,00,000 | Bills Receivable | 50,000 | |
| Sunder | 2,00,000 | 4,00,000 | Closing Stock | 3,00,000 |
| Reserves | 3,40,000 | Cash in Hand | 50,000 | |
| Sundry Creditors | 4,00,000 | Cash at Bank | 1,00,000 | |
| Bills Payable | 1,00,000 | |||
| Outstanding Expenses | 60,000 | |||
| 23,00,000 | | 23,00,000 | ||
Calculate the value of goodwill, if it is valued at three years' purchase of Super Profit.
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.
Which of the following is true?
The following are the profits of a firm in the last five years:
2014: ₹ 10,000; 2015: ₹ 11,000; 2016: ₹ 12,000; 2017: ₹ 13,000 and 2018: ₹ 14,000
Calculate the value of goodwill at 2 years purchase of average profit of five years.
From the following details, calculate the value of goodwill at 2 years purchase of super profit:
- Total assets of a firm are ₹ 5,00,000
- The liabilities of the firm are ₹ 2,00,000
- Normal rate of return in this class of business is 12.5%.
- Average profit of the firm is ₹ 60,000.
How is the value of goodwill calculated under the capitalisation method?
What is the need for the valuation of goodwill?
Name the method under which the goodwill is valued at the agreed number of 'years' purchase of the average profits of the past few years?
