GOODWILL HW

1. The total capital of the firm of Saurabh, Mohit and Nikhil was Rs.
1,00,000. The net profit for the last 3 years was: 2016-17 Rs. 40,000;
2017-18 Rs. 46,000 and 2018-19 Rs.52,000. There was an abnormal loss
of Rs. 3,000 in 2017-18. Goodwill of the firm was to be valued at 2 years’
purchase of the average profits of last three years. Calculate the
goodwill of the firm.

2. Ajay purchases the business of Vijay on 1 st January, 2020 the profit of

past 3 years earned by Vijay are as under:
2017- Rs. 45,000 (including Rs. 7,000 profit from sale of plant)
2018- Rs. 50,000 (including theft of goods worth Rs. 8,000 during the
year)
2019- Rs. 53,000 (does not include Rs. 5,000 as insurance premium)
Calculate the value of goodwill of the firm based on 2 years’ purchase of
the average profit of last 3 years.

3. X proposes to purchase the business carried on by Y. Goodwill is agreed

to be valued at 3 years’ purchase of the weighted average profit of the
past 4 years. The appropriate weights are- 1,2,3 and 4 respectively. The
profits of 4 years are:
2016- Rs. 24,000; 2017- Rs. 29,000; 2018- Rs. 23,000 and 2019- Rs.
35,000 On scrutiny of accounts, we find that
(a) On 1st October, 2018, a major repair was made in plant incurring
Rs.8,000 which amount was charged to revenue. The said sum is
agreed to be capitalised for computation of goodwill subject to
depreciation @ 10% p.a. on diminishing balance method.
(b) The closing stock of 2017 was over valued by Rs.2,000.
(c) It is also agreed that Rs. 3,000 be charged on annual basis as
management expenses which have not been charged earlier.

4. The capital of the firm of Sharma and Verma is Rs.2,00,000 and the
market rate of return is 15%. Annual salary to partners is Rs. 12,000
each. The profits for the last three years were Rs.60,000; Rs.72,000 and
Rs.84,000. Goodwill is to be valued at 2 years purchase of last 3 years
average super profits. Calculate the goodwill of the firm.
5. The average profit of a firm is Rs.1,20,000. The total assets in this firm
are Rs.15,00,000 and outside liabilities are Rs.4,00,000. The normal rate
of return is 10% on capital employed. Calculate goodwill by
Capitalization of super profit and Capitalization of average profit
method.

***********************************************************