Advertisements
Advertisements
Question
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.
Solution
| Years | Profit |
| 2014 | ₹ 10,000 |
| 2015 | ₹ 11,000 |
| 2016 | ₹ 12,000 |
| 2017 | ₹ 13,000 |
| 2018 | ₹ 14,000 |
| Total profit | ₹ 60,000 |
Average profit = `"Total profit"/"Number of years"`
= `(60,000)/5`
= ₹ 12,000
Valuation of goodwill = Average profit × No. of years purchase
= ₹ 12,000 × 2 years
= ₹ 24,000
APPEARS IN
RELATED QUESTIONS
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.
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
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.
On 1st April, 2018, a firm had assets of ₹ 1,00,000 excluding stock of ₹ 20,000. The current liabilities were ₹ 10,000 and the balance constituted Partners' Capital Accounts. If the normal rate of return is 8%, the Goodwill of the firm is valued of ₹ 60,000 at four years' purchase of super profit, find the actual profits of the firm.
Super profit is the difference between _____________.
Which of the following is true?
A partnership firm earned net profits during the last three years as follows:
2016: ₹ 20,000; 2017: ₹ 17,000 and 2018: ₹ 23,000
The capital investment of the firm throughout the above mentioned period has been ₹ 80,000. Having regard to the risk involved, 15% is considered to be a fair return on capital employed in the business. Calculate the value of goodwill on the basis of 2 years purchase of super profit.
When we use the super profit method for goodwill Valuation:
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%.
