Q1

Number of years’ purchase = 3

Q2

Calculation of average profits for the last three years

Average Profits=Total ProfitsNumber of YearsAverage Profits=2,88,000 + 1,81,800 + 1,8
7,2003=Rs 2,19,000Average Profits=Total ProfitsNumber of YearsAverage Profits=2,88,
000 + 1,81,800 + 1,87,2003=Rs 2,19,000

Calculation of average profits for the last four years

Average Profits= Total ProfitsNumber of YearsAverage Profits= 2,88,000 + 1,81,800 + 1,
87,200 + 2,53,2003=Rs 2,27,550Average Profits= Total ProfitsNumber of YearsAverage 
Profits= 2,88,000 + 1,81,800 + 1,87,200 + 2,53,2003=Rs 2,27,550

Average Profits for last four years is higher than the Average Profits for last three years.
Thus, Goodwill of the firm is 2,27,550.

Q3
Year Profit
2019-20 8,00,000

2018-19 15,00,000
2017-18 18,00,000
2016-17 (4,00,000)
2015-16 13,00,000
Total 50,00,000
Profit
Average Profits=Total ProfitsNumber of Years'=50,00,0005=Rs 10,00,000Average Profit
s=Total ProfitsNumber of Years'=50,00,0005=Rs 10,00,000

Goodwill = Avg. Profits ×× No. of Years' Purchase

         = 10,00,000 ×× 3
        = Rs 30,00,000

Q4

Calculation of Average Profit

2017–18 = 1,00,000 – 12,500 = 87,500

2018–19 = 1,25,000 + 25,000 = 1,50,000

2019–20 = 1,12500 – 12,500 = 1,00,000

Total Profits for last three years = 3,37,500

Average Profits=Total ProfitsNumber of YearsAverage Profits=3,37,5003=1,12,500Avera
ge Profits=Total ProfitsNumber of YearsAverage Profits=3,37,5003=1,12,500

Goodwill=Average Profits × Numbers' of Year PurchaseGoodwill=1,12,500×2=2,25,000
Goodwill=Average Profits × Numbers' of Year PurchaseGoodwill=1,12,500×2=2,25,000

Page No 2.30:

Q5
Year 2015–16 2016–17 2017–18 2018–19 2019–20
Profit/Loss       1,50,000 3,50,000 5,00,000 7,00,000 (6,00,000)
  Add: Wrong         1,00,000
Debit
          (25,000)
Less: Depreciation
Total 1,50,000 3,50,000 5,00,000 7,00,000 (5,25,000)

Average Profits= Total ProfitsNumber of YearsAverage Profits= 1,50,000+ 3,50,000 + 5,
00,000+ 7,00,000 + (5,25,000)5 = 11,75,0005=2,35,000Average Profits= Total ProfitsNum
ber of YearsAverage Profits= 1,50,000+ 3,50,000 + 5,00,000+ 7,00,000 + (5,25,000)5 = 
11,75,0005=2,35,000

Goodwill = Average Profits × No. of Years' PurchaseGoodwill = 2,35,000 × 4 = Rs 9,40,0
00Goodwill = Average Profits × No. of Years' PurchaseGoodwill = 2,35,000 × 4 = Rs 9,4
0,000

Goodwill = Normal Average Profit × Number of years' purchase

Q6
Abnormal Abnormal
Actual Normal
Year + Loss – Gain =
Profit Profit
Non-recurring Non-recurring
2020 30,000 + 40,000 – Nil = 70,000
2019 (80,000) + 1,10,000 – Nil = 30,000
2018 1,10,000 + Nil – 30,000 = 80,000
Normal Profit for 3 Years 1,80,000
   

Number of years’ purchase is 2

Goodwill = 60,000 × 2 = Rs 1,20,000

Q 7

Abnormal Abnormal
Actual Normal
Year + Loss – Gain =
Profit Profit
Non-recurring Non-recurring
2018 50,000 + Nil – 5,000 = 45,000
2019 (20,000) + 30,000 – Nil = 10,000
2020 70,000 + Nil – 18,000+8,000 = 44,000
Normal Profit for 3 Years        99,000
   
Number of years’ purchase = 2

Page No 2.30:

Q8

Goodwill=Average Profit×No. of years' purchase               =1,41,250×2=Rs 2,82,500Good
will=Average Profit×No. of years' purchase               =1,41,250×2=Rs 2,82,500

Working Notes:
WN: 1 Calculation of Normal Profits

Year Profit/(Loss) (Rs) Adjustment Normal Profit (Rs)

31 March, 2017 80,000 20,000 1,00,000
31 March, 2018 1,45,000 (25,000) 1,20,000
31 March, 2019 1,60,000 (15,000) 1,45,000
31 March, 2020 2,00,000    2,00,000

  5,45,000
 

WN: 2 Calculation of Average Profit

Average Profit=Total Profit for past given years Number of Years                        =5,45,000
4=Rs 1,41,250Average Profit=Total Profit for past given years Number of Years                        
=5,45,0004=Rs 1,41,250
 

Q9
Goodwill=Average Profit×No. of years' purchase               =1,00,000×3=Rs 3,00,000Good
will=Average Profit×No. of years' purchase               =1,00,000×3=Rs 3,00,000

Working Notes:
WN: 1 Calculation of Normal Profits

Year Profit/(Loss) (Rs) Adjustment Normal Profit (Rs)

31 March, 2016 (90,000) - (90,000)
31 March, 2017 1,60,000 (50,000) 1,10,000
31 March, 2018 1,50,000 20,000 1,70,000
31 March, 2019 65,000 85,000* 1,50,000
31 March, 2020 1,77,000 (17,000) 1,60,000
  5,00,000
* Adjustment Amount

Overhauling cost of second hand machinery wrongly accounted as expense 1,00,000

instead of capital expenditure. Profit to be increase by Rs
1,00,000                     
Depreciation to be debited from P&L A/c (1,00,000×20100×912) (15,000)
(1,00,000×20100×912)
Amount to be added back 85,000
 

WN: 2 Calculation of Average Profit

Average Profit=Total Profit for past given yearsNumber of Years                        =5,00,000
5=Rs 1,00,000Average Profit=Total Profit for past given yearsNumber of Years                        =
5,00,0005=Rs 1,00,000
 

Page No 2.31:

Q 10
Year Profit × Weight = Product
2016 20,000 × 1 = 20,000
2017 24,000 × 2 = 48,000
2018 30,000 × 3 = 90,000
2019 25,000 × 4 = 1,00,000
2020 18,000 × 5 = 90,000
Total     15   3,48,000
           
 Page No 2.31:

Q 11
Profit before Profit after
Partners’
Year Partners’ – = Partners’
Remuneration
Remuneration Remuneration
2017-18 2,00,000 – 90,000 = 1,10,000
2018-19 2,30,000 – 90,000 = 1,40,000
2019-20 2,50,000 – 90,000 = 1,60,000

 
Year Profit × Weight = Product
2017-18 1,10,000 × 1 = 1,10,000
2018-19 1,40,000 × 2 = 2,80,000
2019-20 1,60,000 × 3 = 4,80,000
  Total   6   8,70,000
           

Q 12

Goodwill = Weighted Average Profit × No. of years purchase

 Profit before Profit after Weighted
Year Salary Weights
Salary Salary Profit
  A B C=A–B D E=C×D
 2012 1,40,000 90,000 50,000 1 50,000
2013 1,01,000 90,000 11,000 2 22,000
2014 1,30,000 90,000 40,000 3 1,20,000
      Total 6 1,92,000

 Weighted Average Profit=Total Weighted ProfitsTotal Weights=1,92,0006=32,000Weig
hted Average Profit=Total Weighted ProfitsTotal Weights=1,92,0006=32,000

Goodwill = Weighted Average Profits × No. of Years' PurchaseGoodwill= 32,000×4=1,28
,000Goodwill = Weighted Average Profits × No. of Years' PurchaseGoodwill= 32,000×4=
1,28,000

Page No 2.31:

Q 13

Clue: Calculation of Normal Profit

Normal
Year Particulars  
Profit
2017 25,000  5000 (Management Cost) = 20,000
2018 27,000 + 10,000 (Plant Repair) – 1,000 (Deprecation) – 1000 = 30,000
(Closing Stock)   5000 (Management Cost)
2019 46,900 – 900 (Deprecation) +1,000 (Opening Stock) – 2,000 = 40,000
(Closing Stock) – 5,000 (Management Cost)
2020 53,810 – 810 (Deprecation) + 2,000 (Opening Stock) – 5,000 = 50,000
(Management Cost) 

CLUE : Calculation of Weighted Profit

Year Normal Profit × Weight = Product
2017 20,000 × 1 = 20,000
2018 30,000 × 2 = 60,000
2019 40,000 × 3 = 1,20,000
2020 50,000 × 4 = 2,00,000
  Total   10   4,00,000
           
 Page No 2.32:

Q 14
Year Profit × Weight = Product
2018 45,000 × 1 = 45,000
2019    15,000 × 2 =           30,000
2020 44,000 × 3 = 1,32,000
  Total   6   2,07,000
           

Weighted Average Profit =Total Product of ProfitsTotal of Weights=2,07,0006=Rs 

34,500=Total Product of ProfitsTotal of Weights=2,07,0006=Rs 34,500
Goodwill = Weighted Average Profit × Number of Years’ Purchase
               = 34,500 × 2 = Rs 69,000

Goodwill brought in by Ramesh = Total Goodwill × His share of Profit

=69,000 × 14= Rs 17,250=69,000 × 14= Rs 17,250
 
Working Note:
Profits for the past years:

Year Profit   Abnormal Profit Abnormal Loss = Profit

2013 50,000 − 5,000   = 45,000
-
2014    (20,000) +   35,000 = 15,000
2015 70,000 - 26,000*   = 44,000
  Total         2,07,000
*Total Abnormal Gain = 18,000 (Insurance claim received) + 8,000 (Interest & Dividend
received) = 26,000

Page No 2.32:

Q 15

Goodwill=Weighted Average Profit×No. of years' Purchase               =1,39,000×3=Rs 4,1
7,000it×No. of years' Purchase               =1,39,000×3=Rs 4,17,000

Working Notes:
W: 1 Calculation of Normal Profits:

Year Profit/(Loss) (Rs) Adjustment Normal Profit (Rs)

31 March, 2016 70,000 20,000 90,000
31 March, 2017 1,40,000 (30,000) 1,10,000
31 March, 2018 1,00,000 - 1,00,000
31 March, 2019 1,60,000 (10,000) 1,50,000
31 March, 2020 1,65,000 10,000 1,75,000
 

W: 2 Calculations of Weighted Average Profits:

Year Normal Profit Weight Product

31 March, 2016 90,000 1 90,000
31 March, 2017 1,10,000 2 2,20,000
31 March, 2018 1,00,000 3 3,00,000
31 March, 2019 1,50,000 4 6,00,000
31 March, 2020 1,75,000 5 8,75,000
Total   15 20,85,000

Weighted Average Profit=Total of Profit ProductTotal of Weights                                       
=20,85,00015=Rs 1,39,000Weighted Average Profit=Total of Profit ProductTotal of 
Weights                                       =20,85,00015=Rs 1,39,000

Page No 2.32:

Q 16

Goodwill=Weighted Average Profit (Adjusted)×No. of years' Purchase               =1,05,00
0×3=Rs 3,15,000Goodwill=Weighted Average Profit (Adjusted)×No. of years' Purchase   
            =1,05,000×3=Rs 3,15,000
 
Clues for the question:
Clue: 1 Calculation of Normal Profits:

Year Profit/(Loss) (Rs) Adjustment Normal Profit (Rs)

31 March, 2016 1,25,000 - 1,25,000
31 March, 2017 1,40,000 - 1,40,000
31 March, 2018 1,20,000 - 1,20,000
31 March, 2019 55,000 1,35,000* 1,50,000
31 March, 2020 2,57,000 (67,000)** 1,90,000
 

 
* Adjustment Amount

(1) Amount spent at the time of purchase of machinery wrongly accounted 1,00,000
as expense instead of capital expenditure. Profit to be increase by Rs
1,00,000                     
Depreciation to be debited from P&L A/c (1,00,000×20100×912) (15,000)
(1,00,000×20100×912)
Amount to be added back 85,000
st
(2) Closing stock being undervalued on 31  March, 2016 means profit is shown at lower profit.
 

** Adjustment Amount

(1) Written down value as on 1st April, 2016 on amount spent                      85,000

Depreciation to be debited from P&L A/c (85,000×20100)(85,000×20100) (17,000)

Amount to be added back 68,000
st
(2) Closing stock being undervalued on 31  March, 2016 means profit is shown at lower profit.
Profit for next year shown at higher amount as closing stock of previous year is carried forward
as opening stock of next year.
 

Clue: 2 Calculations of Weighted Average Profits:

Year Normal Profit Weights Product

31 March, 2016 1,25,000 1 1,25,000
31 March, 2017 1,40,000 2 2,80,000
31 March, 2018 1,20,000 3 3,60,000
31 March, 2019 1,90,000 4 7,60,000
31 March, 2020 1,90,000 5 9,50,000
Total   15 24,75,000

Weighted Average Profit=Total of Profit ProductTotal of Weights                                       
=24,75,00015=Rs 1,65,000Weighted Average Profit (Adjusted) = Rs 1,65,000 - 60,000(Re
muneration to partners)                                                        = Rs 1,05,000Weighted Average 
Profit=Total of Profit ProductTotal of Weights                                       =24,75,00015=Rs 
1,65,000Weighted Average Profit (Adjusted) = Rs 1,65,000 - 60,000(Remuneration to p
artners)                                                        = Rs 1,05,000

Page No 2.32:

Q 17
Goodwill=Super Profit×No. of Years' Purchase               =24,000×7=Rs 1,68,000Goodwill=
Super Profit×No. of Years' Purchase               =24,000×7=Rs 1,68,000

Working Notes:
 
Clue: Calculation of Future Maintainable Profits

Average Profit=80,000+8,000                        =Rs 88,000Normal Profit=Capital Employed 
×Normal Rate of Return100                       =8,00,000×8100=Rs 64,000Super Profit=Avera
ge Profit−Normal Profit                    =88,000−64,000=Rs 24,000Average Profit=80,000+8,00
0                        =Rs 88,000Normal Profit=Capital Employed ×Normal Rate of Return100                   
    =8,00,000×8100=Rs 64,000Super Profit=Average Profit−Normal Profit                    =88,000−64,
000=Rs 24,000

Page No 2.33:

Q 18

Number of years’ purchase = 4

Page No 2.33:

ANSWER:
Number of years’ purchase = 3

Page No 2.33:

Q19

Number of years’ purchase = 2

Page No 2.33:

Q20
 

Number of years’ purchase = 2

Page No 2.33:

Q21

Profit before
Partners’ Actual Profit after
Year Partners’ – =
Remuneration Remuneration
Remuneration
2013–14 1,70,000 – 1,00,000 = 70,000
2014–15 2,00,000 – 1,00,000 = 1,00,000
2015–16 2,30,000 – 1,00,000 = 1,30,000

Number of years’ purchase = 2

 Page No 2.33:

Q22

Page No 2.33:

Q23

Number of years’ purchase = 4

Page No 2.33:
Q24

Capital Employed = Total Assets − Creditors

= 75,000 − 5,000 = Rs 70,000

Goodwill of the firm = Rs 24,000

Number of years’ purchase = 4

Or, 24,000 = Super Profit × 4

Page No 2.33:

Q25
Goodwill=Super Profit×No. of Years' Purchase               =1,08,500×5=Rs 5,42,500Goodwi
ll=Super Profit×No. of Years' Purchase               =1,08,500×5=Rs 5,42,500

Working Notes:
 
WN1: Calculation of Future Maintainable Profits

Average Profit=1,00,000+40,000                        = Rs 1,40,000Normal Profit=Capital Empl
oyed ×Normal Rate of Return100                       =6,30,000×5100=Rs 31,500Super Profit=
Average Profit−Normal Profit                    =1,40,000− 31,500=Rs 1,08,500Average Profit=1
,00,000+40,000                        = Rs 1,40,000Normal Profit=Capital Employed ×Normal Rate of 
Return100                       =6,30,000×5100=Rs 31,500Super Profit=Average Profit−Normal Profit  
                  =1,40,000− 31,500=Rs 1,08,500
 

Page No 2.33:

Q26

Average Profit earned by a firm = Rs 7,50,000

Overvaluation of Stock = Rs 30,000
Average Actual Profit = Average Profit earned by a firm – Overvaluation of Stock
or, Average Actual Profit = 7,50,000 – 30,000 = Rs 7,20,000

Super Profit = Actual Average Profit – Normal Profit

or, Super Profit = 7,20,000 – 6,30,000 = Rs 90,000
Goodwill = Super Profit × Number of Times
Goodwill = 90,000 × 3 = Rs 2,70,000

Page No 2.34:

Q27

Goodwill=Super Profit×No. of Years' Purchase               =48,000×3=Rs 1,44,000Goodwill
=Super Profit×No. of Years' Purchase               =48,000×3=Rs 1,44,000

Working Notes:
WN: 1 Calculation of Normal Profits:

Year Profit/(Loss) (Rs) Adjustment Normal Profit (Rs)

31 March, 2013 1,50,000 - 1,50,000
31 March, 2014 1,80,000 - 1,80,000
31 March, 2015 1,00,000 1,00,000 2,00,000
31 March, 2016 2,60,000 (40.000) 2,20,000
31 March, 2017 2,40,000 - 2,40,000
    Total Profit 9,90,000
 

WN2: Calculation of Super Profits

Average Profit=Total Profit of past given yearsNumber of Years                        =9,90,0005
=Rs 1,98,000Normal Profit=Capital Employed×Normal Rate of Return100                       
=15,00,000×10100=Rs 1,50,000Super Profit=Average Profit−Normal Profit                    =
1,98,000−1,50,000=Rs 48,000Average Profit=Total Profit of past given yearsNumber of Y
ears                        =9,90,0005=Rs 1,98,000Normal Profit=Capital Employed×Normal R
ate of Return100                       =15,00,000×10100=Rs 1,50,000Super Profit=Average P
rofit-Normal Profit                    =1,98,000-1,50,000=Rs 48,000

WN3: Calculation of Capital Employed

  Capital Employed=Total Assets−Outside Liabilities                              =20,00,000−5,00,0
00=Rs 15,00,000  Capital Employed=Total Assets-Outside Liabilities                              =20,00,
000-5,00,000=Rs 15,00,000

Page No 2.34:

Q28

Total Capital = Rs 16,00,000

Page No 2.34:

Q29
 Page No 2.34:

Q30

Capital Employed = Total Tangible Assets – Outside Liabilities

Capital Employed = 28,00,000 – 8,00,000 = Rs 20,00,000

Normal Profit=Capital Employed×Normal Rate of Return 100Normal Profit=Capital Em
ployed×Normal Rate of Return 100

Normal Profit=20,00,000×10 100=Rs 2,00,000Normal Profit=20,00,000×10 100=Rs 2,00,
000

Average Profit = Rs 3,00,000

Super Profit= Average Profit– Normal Profit

Super Profit= 3,00,000 – 2,00,000 = 1,00,000

Goodwill=Super Profit × 100 Normal Rate of ReturnGoodwill=1,00,000×10010=Rs 10,00
,000Goodwill=Super Profit × 100 Normal Rate of ReturnGoodwill=1,00,000×10010=Rs 1
0,00,000

Page No 2.34:

Q31
 Page No 2.34:

Q32
Goodwill =Super Profit ×100Normal Rate of Return              =67,500 ×10010=Rs 6,75,00
0Goodwill =Super Profit ×100Normal Rate of Return              =67,500 ×10010=Rs 6,75,000
Working Notes:
 
WN1: Calculation of Future Maintainable Profits

Average Profit=1,25,000           Normal Profit=Capital Employed×Normal Rate of Return
100                       =5,75,000 ×10100=Rs 57,500Super Profit=Average Profit–Normal Profi
t                    =1,25,000–57,500=Rs 67,500The Capital Employed will be Rs 5,75,000=2,50,
000+3,00,000+50,000–25,000Average Profit=1,25,000           Normal Profit=Capital Employed×
Normal Rate of Return100                       =5,75,000 ×10100=Rs 57,500Super Profit=Average Profit
–Normal Profit                    =1,25,000–57,500=Rs 67,500The Capital Employed will be Rs 5,75,000
=2,50,000+3,00,000+50,000–25,000

Page No 2.34:

Q33

Goodwill=Super Profit×100Normal Rate of Return              =80,000×10010=Rs 8,00,000
Goodwill=Super Profit×100Normal Rate of Return              =80,000×10010=Rs 8,00,000
Working Notes:

WN1: Calculation of Super Profits

Average Profit=Total Profit for past given yearsNumber of Years                        =Rs 2,00,0
00Normal Profit=Capital Employed×Normal Rate of Return100                       =12,00,000
×10100=Rs 1,20,000Super Profit=Average Profit−Normal Profit                    =2,00,000−1
,20,000=Rs 80,000Average Profit=Total Profit for past given yearsNumber of Years                    
    =Rs 2,00,000Normal Profit=Capital Employed×Normal Rate of Return100                       =12,
00,000×10100=Rs 1,20,000Super Profit=Average Profit-Normal Profit                    =2,00,000-
1,20,000=Rs 80,000

WN2: Calculation of Capital Employed

Capital Employed=Total Assets−Outside Liabilities                              =15,00,000−3,00,00
0=Rs 12,00,000Capital Employed=Total Assets-Outside Liabilities                              =15,00,00
0-3,00,000=Rs 12,00,000
 

Page No 2.35:

ANSWER:

(i) Goodwill=Super Profit×No. of Years' Purchase               =20,000×3=Rs 60,000Goodwil
l=Super Profit×No. of Years' Purchase               =20,000×3=Rs 60,000

(ii) Goodwill=Super Profit×100Normal Rate of Return              =20,000×10010=Rs 2,00,0
00Goodwill=Super Profit×100Normal Rate of Return              =20,000×10010=Rs 2,00,0
00
Working Notes:

WN1: Calculation of Super Profits

Average Profit=Total Profits for past given yearsNo. of Years                        =Rs 50,000No
rmal Profit=Capital Employed×Normal Rate of Return100                       =3,00,000×1010
0=Rs 30,000Super Profit=Average Profit−Normal Profit                    =50,000−30,000=Rs 
20,000Average Profit=Total Profits for past given yearsNo. of Years                        =Rs 50,000N
ormal Profit=Capital Employed×Normal Rate of Return100                       =3,00,000×10100=Rs 
30,000Super Profit=Average Profit-Normal Profit                    =50,000-30,000=Rs 20,000

Page No 2.35:

ANSWER:

1. Goodwill=Average Profit×No. of years' Purchase               =1,35,000×3=Rs 4,05,0001. 
Goodwill=Average Profit×No. of years' Purchase               =1,35,000×3=Rs 4,05,000

2. Goodwill=Super Profit×No. of years' Purchase               =22,500×3=Rs 67,5002. 
Goodwill=Super Profit×No. of years' Purchase               =22,500×3=Rs 67,500

3. Goodwill=Super Profit×100Normal Rate of Return              =22,500×10015=Rs 1,50,00
03. Goodwill=Super Profit×100Normal Rate of Return              =22,500×10015=Rs 1,50,
000

 4. Goodwill=Capitalised Value−Net Assets                     = 9,00,000−8,25,000=75,000Capi
talised Value = 1,35,000×10015= 9,00,000Net Assets = 9,00,000−75,000= 8,25,000 4. Goo
dwill=Capitalised Value−Net Assets                     = 9,00,000−8,25,000=75,000Capitalise
d Value = 1,35,000×10015= 9,00,000Net Assets = 9,00,000−75,000= 8,25,000
WN1: Calculation of Average and Super Profits

Average Profit=Total ProfitNo. of Years=2,25,000−1,87,500+6,37,5003−Remuneration t
o partners                        =Rs 2,25,000 − Rs 90,000 (3,750×2×12) ∴Average Profit = Rs 1,3
5,000Normal Profit=Capital Employed×Normal Rate of Return100                       =7,50,00
0×15100=Rs 1,12,500Super Profit=Average Profit−Normal Profit                    =1,35,000−
1,12,500=Rs 22,500Average Profit=Total ProfitNo. of Years=2,25,000−1,87,500+6,37,50
03−Remuneration to partners                        =Rs 2,25,000 − Rs 90,000 (3,750×2×12) 
∴Average Profit = Rs 1,35,000Normal Profit=Capital Employed×Normal Rate of Return1
00                       =7,50,000×15100=Rs 1,12,500Super Profit=Average Profit−Normal Pr
ofit                    =1,35,000−1,12,500=Rs 22,500

Page No 2.35:

ANSWER:

Average Profit – Rs 4,00,000

Normal Rate of Return – 10%

(i) Goodwill by Capitalisation of Super profit

Super Profit = Actual Profit – Normal Profit

= 4,00,000 – 3,28,000
= Rs 72,000

Goodwill = Rs 7,20,000

(ii) Super Profit Method if the goodwill is valued at 3 years’ purchase of super profits

Therefore, Goodwill is valued at Rs 2,16,000

Page No 2.35:

ANSWER:

(i) Calculation of goodwill through Capitalisation Method:

 
Capitalised Value of the Firm=Average Profit ×100 Normal Rate of ReturnCapitalised V
alue of the Firm=4,50,000 ×100 20=22,50,000Capitalised Value of the Firm=Average Pro
fit ×100 Normal Rate of ReturnCapitalised Value of the Firm=4,50,000 ×100 20=22,50,0
00
 
Average Capital Employed = 9,00,000 + 6,00,000 = 15,00,000
 
Goodwill = Capitalised Value of the Firm – Average Capital Employed

Goodwill = 22,50,000 – 15,00,00 = Rs 7,50,000

(ii) Calculation of goodwill through Super Profit Method:

 
Normal Profit==Average Capital Employed × Normal Rate of Return 10015,00,000 × 20 
100=3,00,000Normal Profit=Average Capital Employed × Normal Rate of Return 100=15
,00,000 × 20 100=3,00,000
 
Average Profit = 4,50,000

Super Profit = Average Profit – Normal Profit

Super Profit = 4,50,000 – 3,00,000 = Rs 1,50,000

Goodwill = Super Profit × No. of Years’ purchase

Good will = 1,50,000 × 2 = 3,00,000

Page No 2.35:

ANSWER:

(i) Calculation of Goodwill by Capitalisation of Super Profit Method

Profit of the firm = Rs 5,00,000

(ii) Calculation of Goodwill by Capitalisation of Average Profit Method 

Page No 2.35:

ANSWER:

(i)
Goodwill=Average Profits×Number of Years' PurchaseAverage Profits=Sum of Last Yea
rs' Profits −Losses (if any)Number of Years                          =7,50,000−6,25,000+21,25,000
3=Rs 7,50,000Correct Average Profits=Average Profits−Remuneration                                 
       =7,50,000−(12,500×12×2)=Rs 4,50,000Goodwill=4,50,000×3=Rs 13,50,000Goodwil
l=Average Profits×Number of Years' PurchaseAverage Profits=Sum of Last Years' Profit
s -Losses (if any)Number of Years                          =7,50,000-6,25,000+21,25,0003=Rs 
7,50,000Correct Average Profits=Average Profits-Remuneration                                       
 =7,50,000-(12,500×12×2)=Rs 4,50,000Goodwill=4,50,000×3=Rs 13,50,000

(ii)
Goodwill=Super Profit×Number of Years' PurchaseSuper Profit=Average Profit−Norma
l ProfitAverage Profit=Rs 4,50,000Normal Profit=Average Capital Employed×Normal R
ate of Return100                      =25,00,000×15100=Rs 3,75,000Super Profit=4,50,000−3,75
,000=Rs 75,000Goodwill=75,000×3=Rs 2,25,000Goodwill=Super Profit×Number of Year
s' PurchaseSuper Profit=Average Profit-Normal ProfitAverage Profit=Rs 4,50,000Norma
l Profit=Average Capital Employed×Normal Rate of Return100                      =25,00,000
×15100=Rs 3,75,000Super Profit=4,50,000-3,75,000=Rs 75,000Goodwill=75,000×3=Rs 
2,25,000
 (iii)
Goodwill=Super Profit×100Normal Rate of Return                     =75,000×10015=Rs 5,00,
000Goodwill=Super Profit×100Normal Rate of Return                     =75,000×10015=Rs 5
,00,000

(iv)
Goodwill= Capitalised Value of Firm−Net AssetsCapitalised Value of Firm=Average Pro
fit×100Normal Rate of Return                                            =4,50,000×10015=Rs 30,00,000N
et Assets=Assets (excluding goodwill)−Liabilities                   =30,00,000−2,50,000=Rs 27
,50,000Goodwill=30,00,000−27,50,000=Rs 2,50,000Goodwill= Capitalised Value of Firm-
Net AssetsCapitalised Value of Firm=Average Profit×100Normal Rate of Return              
                              =4,50,000×10015=Rs 30,00,000Net Assets=Assets (excluding good
will)-Liabilities                   =30,00,000-2,50,000=Rs 27,50,000Goodwill=30,00,000-
27,50,000=Rs 2,50,000

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