CH. 1. VALUATION OF GOODWILL [Q. 2
One practical problem on Valuation of Goodwill carrying 5 marks andone theory question on Computer Awareness carrying 5 marks will be askedin Q. 2 of the Board Paper in option to one practical problem on Depreciationcarrying 10 marks. The students may either attempt problem on Depreciationor Goodwill and theory question on Computer Awareness.
Valuation of Goodwill: -
As prescribed in the syllabus, the value of goodwillas on a particular date is ascertained by using any one of the followingmethods:
i.The Average Profit Method and
Goodwill is an intangible (non – visible) fixed asset having a realisable(economic) value. It is the reputation of business. Valuation of goodwill isvery important in the case of admission, retirement and death of partners.
DEFINITION OF GOODWILL
Eric L. Kohler defined goodwill as under:“Goodwill is the excess of the price paid for the business as a whole overthe book value or over the computed value of all tangible assetspurchased. Normally, goodwill thus acquired is only one type appearing onbook of account and in financial statement.”We can define goodwill as under:
“Goodwill is a monetary value of the reputation of a concern in terms of its futureearning capacity.”
1.The profits of the firm for the last five years are 2002 Rs. 20,000; 2003 Rs.16,000; 2004 Rs. 24,000; 2005 Rs. 8000; 2006 Rs. 12,000. Calculate thegoodwill of the firm.
[Ans. Rs. 16,000]
2.Mona, Reena and Sona have been carrying on a partnership business and goodwill of their firm is to be valued at three years purchase of the average profitfor the last five years. The profit and losses for the last five years have been.1
Year Rs. 16,000, 2
Year, 15,000, 3
Year, 8,000(Loss), 4
Year, 7,000, 5
[Ans. Rs. 24,000]
3.Calculate the good will from the following information goodwill is valued atthree years purchase of average profit of the last six years. Profit and losses of the business in the last six years are as follows,1
year, Rs, 40,000(Profit)2
Year, Rs, 60,000(Profit)
1BOOK KEEPING & ACCOUNTANCY