Question

from the following informations , calculate the value of goodwill: (a) Sundry assets of the firm are ₹22,50,800 and current liabilities are<93,625 (b)Average capital employed in the business is ₹ 18,00,000; (c) Rate of interest expected from capital having regard to the risk involved is 10%; (d) Net trading profits of the firm for the past three years were 3,22,800; 2,72,100 and * 3,37,500; and fair remuneration to the partners for their services is 36000 per annum .​

Answer 1

Answer:

(i) 3 Years' purchase of Average Profit method:

Step 1: Calculation of Average Profit:

Average Profit=[(200000-100000)+(180000-100000)+(160000-100000)]/3

                       = 80000

Step 2: Calculation of Goodwill:

Goodwill= 80000 * 3

              = 240000

                       

(ii) 3 Years' purchase of Super Profit method:

Step 1: Calculation of Capital Employed:  

Capital Employed= total assets- external liabilities

                             = 700000-100000

                             = 600000

Step 2: Calculation of Normal Profit:

Normal Profit= 600000* [10/100]

                      = 60000

Step 3: Calculation of Average Profit:

Average Profit=[(200000-100000)+(180000-100000)+(160000-100000)]/3

                       = 80000  

Step 4: Calculation of Super Profit:

Super Profit= 80000-60000

                   = 20000

Step 5: Calculation of goodwill:  

Goodwill= 20000 * 3

              = 60000

(iii) Capitalisation of Super Profit Method:

Step 1: Calculation of Capital Employed:  

Capital Employed= total assets- external liabilities

                             = 700000-100000

                             = 600000

Step 2: Calculation of Normal Profit:

Normal Profit= 600000* [10/100]

                      = 60000

Step 3: Calculation of Average Profit:

Average Profit=[(200000-100000)+(180000-100000)+(160000-100000)]/3

                       = 80000  

Step 4: Calculation of Super Profit:

Super Profit= 80000-60000

                   = 20000

Step 5: Calculation of goodwill:  

Goodwill= Super Profit * [100/Normal Rate of return]

              = 20000*[100/10]

              = 200000

(iv) Capitalisation of Average Profit method:

Step 1: Calculation of Average Profit:

Average Profit=[(200000-100000)+(180000-100000)+(160000-100000)]/3

                       = 80000  

Step 2: Calculation of capitalised value of profit:

Capitalised value of profit= 80000*[100/10]

                                          = 800000

Step 3:  Calculation of Capital Employed:  

Capital Employed= total assets- external liabilities

                             = 700000-100000

                             = 600000

Step 4: Calculation of goodwill:

Goodwill= 800000-600000

              = 200000