CHAPTER NO: 3

GOODWILL
NATURE AND
VALUATION
Q1)GOODWILL
=
• AVG. PROFIT
AVG. PROFIT
• = = 15,000
X
• GW= 15,000 X 3 = 45,000
NO. OF YEARS
PURCHASE

Q2)GOODWIL
L = •
AVG. PROFIT • = = 4,38,600
X
NO. OF YEARS • GW= 4,38,600 X 4 = 17,54,400
PURCHASE
Q3)GOODWILL =
• AVG. PROFIT
AVG. PROFIT
X • = 10,00,000
NO. OF YEARS • GW= 10,00,000 X 3 = 30,00,000
PURCHASE

• OPT 1:
• = = 14,125
Q5)GOODWIL • GW= 14,125 X 4 = 56,500
L =
AVG. PROFIT • OPT 2:
X • = = 14,100
NO. OF YEARS • GW= 14,100 X 4 = 56,400
PURCHASE • NOTE: OPTION 1 HAS HIGHER GOODWILL ,
THEREFORE GW= 56,500
Q7)GOODWILL = AVG. PROFIT X NO. OF YEARS PURCHASE

CALCULATION OF NORMAL PROFIT

YEAR ACTUAL PROFIT ADJUSTMENT NORMAL PROFIT
2016 1,25,000 - 1,25,000
2017 1,00,000 25,000 1,25,000
2018 1,87,500 - 1,87,500
2019 (62,500) - (62,500)
2020 1,25,000 - 1,25,000
TOTAL = 5,00,000

GOODWILL
= 1,00,000 X 3 AVG. PROFIT
= 3,00,000 = = 1,00,000
Q8)GOODWILL = AVG. PROFIT X NO. OF YEARS PURCHASE

CALCULATION OF NORMAL PROFIT

YEAR ACTUAL PROFIT ADJUSTMENT NORMAL PROFIT

2018 1,00,000 (12,500) 87,500
2019 1,25,000 25,000 1,50,000
2020 1,12,500 (12,500) 1,00,000
TOTAL = 3,37,500

GOODWILL
= 1,12,500 X 2 AVG. PROFIT
= 2,25,000 = = 1,12,500
Q10)GOODWILL = AVG. PROFIT X NO. OF YEARS PURCHASE

CALCULATION OF NORMAL PROFIT

YEAR ACTUAL PROFIT ADJUSTMENT NORMAL PROFIT

2018 1,10,000 (30,000) 80,000
2019 (80,000) 1,10,000 30,000
2020 30,000 40,000 70,000
TOTAL = 1,80,000

GOODWILL
= 60,000 X 2 AVG. PROFIT
= 1,20,000 = = 60,000
Q11)GOODWILL = AVG. PROFIT X NO. OF YEARS PURCHASE
CALCULATION OF NORMAL PROFIT

YEAR ACTUAL PROFIT ADJUSTMENT NORMAL PROFIT

2018 50,000 (5,000) 45,000
2019 (20,000) 30,000 10,000
2020 70,000 (18,000) 44,000
(8,000) (70,000-26,000)
TOTAL = 99,000

GOODWILL =
33,000 X 2
= 66,000
AVG. PROFIT
KANIKA’S SHARE = 66,000 X ¼ = = 33,000
16,500
Q9)GOODWILL = AVG. PROFIT X NO. OF YEARS PURCHASE

CALCULATION OF NORMAL PROFIT

YEAR ACTUAL PROFIT ADJUSTMENT NORMAL PROFIT
2016 1,50,000 - 1,50,000
2017 3,50,000 - 3,50,000
2018 5,00,000 - 5,00,000
2019 7,10,000 (10,000) 7,00,000
2020 (5,90,000) ASSET +1,00,000 (5,25,000)
INT. (10,000)
DEP. (25,000) (5,90,000- 65,000)
TOTAL = 11,75,000

GOODWILL AVG. PROFIT

= 2,35,000 X 4
= = 2,35,000
= 9,40,000
Q12)GOODWILL = AVG. PROFIT X NO. OF YEARS PURCHASE

CALCULATION OF NORMAL PROFIT

YEAR ACTUAL PROFIT ADJUSTMENT NORMAL PROFIT
2017 80,000 20,000 1,00,000
2018 1,45,000 (25,000) 1,20,000
2019 160,000 (15,000) 1,45,000
2020 2,00,000 - 2,00,000
TOTAL = 5,65,000

GOODWILL
= 1,41,250 X 2 AVG. PROFIT
= 2,82,500 = = 1,41,250
Q14) GOODWILL = WEIGHTED AVG. PROFIT X NO. OF YEARS PURCHASE

CALCULATION OF WEIGHTED PROFIT

YEAR ACTUAL PROFIT WEIGHTS WEIGHTED PROFIT

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
TW = 15 TWP= 3,48,000

GOODWILL
WEIGHTED AVG. PROFIT
= 23,200 X 3
= = 23,200
= 69,600
 Q15 ) GOODWILL = WEIGHTED AVG. PROFIT X NO. OF YEARS PURCHASE

CALCULATION OF WEIGHTED PROFIT

YEAR ACTUAL PROFIT ADJUSTMENT ADJUSTED PROFIT WEIGHTS WEIGHTED PROFIT

2018 1,40,000 (90,000) 50,000 1 50,000

2019 1,01,000 (90,000) 11,000 2 22,000
2020 1,30,000 (90,000) 40,000 3 1,20,000
TW= 6 TWP= 1,92,000

GOODWILL WEIGHTED AVG. PROFIT

= 32,000 X 4
= 1,28,000 = = 32,000
Q16) GOODWILL = WEIGHTED AVG. PROFIT X NO. OF YEARS PURCHASE

CALCULATION OF WEIGHTED PROFIT

YEAR ACTUAL ADJUSTMENTS ADJUSTED W WEIGHTED
PROFIT PROFIT PROFIT
2017 25,000 MNG. EXP (5,000) 20,000 1 20,000
2018 27,000 ASSET+10,000 30,000 2 60,000
DEP(1,000)
C. STOCK(1000)
MANG. (5,000)

2019 46,900, DEP. (900) 40,000 3 1,20,000

O. STOCK + 1000
C.STOCK (2,000)
MANG. (5,000)

2020 53,810 DEP.(810) 50,000 4 2,00,000

O.STOCK + 2000
MANG. (5,000)

TW =10 TWP=4,00,000
WEIGHTED AVG. PROFITP= 4,00,000/10 = 40,000
GOOD WILL = 40,000 X 3
1,20,000

WORKING NOTES:
CALCULATION OF DEPRECIATION
YEARS Rs.
Apr 2017 COST OF THE ASSETS 10,000
M 2018 LESS: DEP (1,000)
= 9000
M 2019 LESS: DEP (900)
= 8100
M 2020 LESS: DEP (810)
= 7290
17) GOODWILL = SUPER PROFIT X NO .OF YEARS’ PURCHASE

CALCULATION OF GOODWILL:
•  
STEP:1 CAPITAL EMPLOYED = 10,00,000
STEP:2 AVG. PROFIT = = 3,60,000 - 1,20,000
= 2,40,000
STEP:3 NORMAL PROFIT= CAPITAL EMPLOYED X
= 10,00,000 X = 1,50,000

STEP:4 SUPER PROFIT = AVG. PROFIT – NORMAL PROFIT

2,40,000 – 1,50,000 = 90,000
STEP:5 GW = SUPER PROFIT X NO. OF YEARS PURCHASE
90,000 X 2 = 1,80,000.
23) GOODWILL = SUPER PROFIT X NO .OF YEARS’ PURCHASE

•  
CALCULATION OF GOODWILL:
STEP:1 CAPITAL EMPLOYED = TOTAL ASSETS – OUTSIDE LIABILITIES
22,00,000 – 5,60,000 = 16,40,000
STEP:2 AVG. PROFIT = 8,00,000
STEP:3 NORMAL PROFIT= CAPITAL EMPLOYED X
= 16,40,000 X = 1,64,000

STEP:4 SUPER PROFIT = AVG. PROFIT – NORMAL PROFIT

8,00,000 – 1,64,000 = 6,36,000
STEP:5 GW = SUPER PROFIT X NO. OF YEARS PURCHASE
6,36,000 X 5/2 = 15,90,000
•   CALCULATION OF AVG. PROFIT :
25) ( very imp. Problem)

GOODWILL = 24,000
STEP:1 GOODWILL = SUPER PROFIT X NO. OF YEARS PURCHASE
24,000 = SUPER PROFIT X 4
= SUPER PROFIT = 24,000/4 = 6,000
STEP:2 CAPITAL EMPLOYED = TOTAL ASSETS – OUTSIDE LIABILITIES
= 75,000 – 5,000 = 70,000
(or) CE = CAPITAL + RESERVES
= 60,000 + 10,000 = 70,000
STEP:3 NORMAL PROFIT= CAPITAL EMPLOYED X
= 70,000 X = 14,000
STEP:4 SUPER PROFIT = AVG. PROFIT – NORMAL PROFIT
6,000 = AVG. PROFIT – 14,000
6,000 + 14,000 = AVG. THEREFORE, AVG.
PROFIT = 20,000
SUPER PROFIT METHOD WHEN PAST ADJUSTMENTS ARE
MADE
•  CALCULATION OF GOODWILL:
27)
STEP:1 CAPITAL EMPLOYED = 6,30,000
STEP:2 AVG. PROFIT = 1,00,000 + 40,000 =
1,40,000
STEP:3 NORMAL PROFIT= CAPITAL EMPLOYED X
= 6,30,000 X = 31500
STEP:4 SUPER PROFIT = AVG. PROFIT – NORMAL PROFIT
1,40,000 – 31,500 = 108500
STEP:5 GW = SUPER PROFIT X NO. OF YEARS PURCHASE
108500 X 5 = 542500
•  CALCULATION OF GOODWILL:
28)

STEP:1 CAPITAL EMPLOYED = 42,00,000

STEP:2 AVG. PROFIT = 7,50,000 - 30,000 = 7,20,000
STEP:3 NORMAL PROFIT= CAPITAL EMPLOYED X
= 42,00,000 X = 6,30,000
STEP:4 SUPER PROFIT = AVG. PROFIT – NORMAL PROFIT
=7,20,000 – 6,30,000 = 90,000
STEP:5 GW = SUPER PROFIT X NO. OF YEARS PURCHASE
90,000 X 3 = 2,70,000
 29) STEP:1 CAPITAL EMPLOYED = 20,00,000- 5,00,000 = 15,00,000
YEAR ACTUAL PROFIT ADJUSTMENT ADJUSTED PROFIT
2016 1,50,000 - 1,50,000 STEP: 2
2017 1,80,000 - 1,80,000
AVG. PROFIT =
2018 1,00,000 1,00,000 2,00,000
TOTAL PROFITS/ NO. OF YEARS
2019 2,60,000 (40,000) 2,20,000
= 9,90,000/5
2020 2,40,000 - 2,40,000
= 198000
N= 5 TP= 9,90,000

 STEP:3 NORMAL PROFIT= CAPITAL EMPLOYED X

= 15,00,000 X = 1,50,000
STEP:4 SUPER PROFIT = AVG. PROFIT – NORMAL PROFIT
=1,98,000 – 1,50,000 = 48,000
STEP:5 GW = SUPER PROFIT X NO. OF YEARS PURCHASE
48,000 X 3 = 1,44,000
 CAPITALISATION METHOD

CAPITALISATION OF AVG. PROFIT CAPITALISATION OF SUPER PROFIT

GOODWILL = CVB-CE
GOODWILL =
CAPITALISED VALUE OF BUSINESS( CVB)
= AVG. PROFIT X SUPER PROFIT X
30. GOODWILL = CVB - CE

[CVB(VALUE OF THE FIRM) – CAPITAL EMPLOYED( NET ASSETS)]

CAPITAL EMPLOYED = 16,00,000; NRR = 10%;

AVG. PROFIT= 2,00,000

CVB = AVG. PROFIT X

= 2,00,000X
= 20,00,000

GW= 20,00,000 – 16,00,000 = 4,00,000

33. GOODWILL = CVB - CE

[CVB(VALUE OF THE FIRM) – CAPITAL EMPLOYED( NET ASSETS)]

CAPITAL EMPLOYED = 8,20,000 ( 10,00,000 – 1,80,000); NRR = 10%;

AVG. PROFIT= 1,00,000

CVB = AVG. PROFIT X

= 1,00,000X
= 10,00,000

GW= 10,00,000 – 8,20,000 = 1,80,000

34. GOODWILL = CVB - CE
[CVB(VALUE OF THE FIRM) – CAPITAL EMPLOYED( NET ASSETS)]

CAPITAL EMPLOYED = 2,00,000; NRR = 20%;

AVG. PROFIT = = 52,200

CVB = AVG. PROFIT X

= 52,200X
= 2,61,000

GW= 2,61,000 – 2,00,000 = 61,000

36. a) GOODWILL = CVB – CE (CAPITALISATION OFAVG. PROFIT METHOD)

CVB = AVG. PROFIT X

= 5,00,000X = 50,00,000

CAPITAL EMPLOYED = 55,00,000-14,00,000 = 41,00,000;

NRR = 10%; AVG. PROFIT= 5,00,000

GW = 50,00,000-41,00,000 = 9,00,000

b) NORMAL PROFIT = CAPITAL EMPLOYED X

= 41,00,000 X 10 % = 4,10,000
SUPER PROFIT = AVG. PROFIT – NORMAL PROFIT
= 5,00,000 – 4,10,000 = 90,000

GOODWILL = SUPER PROFIT X W= 90,000X = 9,00,000

•  CALCULATION OF GOODWILL:
35)
STEP:1 CAPITAL EMPLOYED = 40,00,000-7,20,000
= 32,80,000
STEP:2 AVG. PROFIT = 4,00,000
STEP:3 NORMAL PROFIT = CAPITAL EMPLOYED X
= 32,80,000 X = 3,28,000
STEP:4 SUPER PROFIT = AVG. PROFIT – NORMAL PROFIT
= 4,00,000 – 3,28,000 = 72,000
(i) GOODWILL = SUPER PROFIT X
= 72,000 X = 7,20,000
(ii) GW = SUPER PROFIT X NO. OF YEARS PURCHASE
= 72,000 X 3 = 2,16,000
•  CALCULATION OF GOODWILL:
42)
(ii) STEP:1 CAPITAL EMPLOYED = 9,00,000+6,00,000
= 15,00,000
STEP:2 AVG. PROFIT = 4,50,000
STEP:3 NORMAL PROFIT = CAPITAL EMPLOYED X
= 15,00,000 X = 3,00,000
STEP:4 SUPER PROFIT = AVG. PROFIT – NORMAL PROFIT
= 4,50,000 – 3,00,000 = 1,50,000
STEP:5 GW = SUPER PROFIT X NO. OF YEARS PURCHASE
= 1,50,000 X 2 = 3,00,000
(i) GOODWILL = SUPER PROFIT X
= 1,50,000 X = 7,50,000
•  
43) CAPITAL EMPLOYED = 6,00,000
 AVG. PROFIT = = 1,80,000
= 1,80,000 – 1,00,000 = 80,000
 NORMAL PROFIT = CAPITAL EMPLOYED X
= 6,00,000 X = 60,000
 SUPER PROFIT = 80,000 -60,000 = 20,000
 CVB = (80,000 X ) = 8,00,000
CALCULATION OF GOODWILL:
(i) GW( AVG. PROFIT METHOD) = 80,000 X 3 = 2,40,000
(ii) GW ( SUPER PROFIT METHOD) = 20,000 X 3 = 60,000
(iii) GW ( CAP. OF SUPER PROFIT METHOD) = 20,000 X = 2,00,000
(iv) GW ( CAP. OF AVG. PROFIT METHOD) = CVB - CE
= 8,00,000 – 6,00,000 = 2,00,000.
 V ) GOODWILL = WEIGHTED AVG. PROFIT X NO. OF YEARS PURCHASE

CALCULATION OF WEIGHTED PROFIT

YEAR ACTUAL PROFIT ADJUSTMENT ADJUSTED PROFIT WEIGHTS WEIGHTED PROFIT

2018 1,60,000 (1,00,000) 60,000 1 60,000

2019 1,80,000 (1,00,000) 80,000 2 1,60,000
2020 2,00,000 (1,00,000) 1,00,000 3 3,00,000
TW= 6 TWP= 5,20,000

GOODWILL WEIGHTED AVG. PROFIT

= 86,666.66 X 3
= 2,60,000 = = 86,667
Thank you