Question

Q13. Calculate the value of goodwill at 3 years’ purchase when: capital employed Rs.2,50,000:

average profit Rs.30,000 and normal rate of return is 10%. (1)

(a) Rs.3,000 (b) Rs.25,000 (c) Rs.30,000 (d) Rs.15,000​

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

Answer 2

Explanation:

Solution :

★ Goodwill = Super Profit × No. of years Purchases

• Normal Profit = Capital Employed × (Normal Rate of Return/100)

= 2,50,000 × (10/100)

= 25,000

Normal Profit = 25,000

• Super Profit = Average Profit - Normal Profit

= 30,000 - 25,000

= 5,000

Super Profit = 5,000

★ Goodwill = Super Profit × No. of years Purchases

= 5,000 × 3

= 15,000

Goodwill = Rs. 15,000

Therefore, Option (d ) Rs. 15,000

The value of Goodwill = Rs. 15,000