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Assignment- Goodwill

This is a assignment for the students of Accountancy and let me know if anything else is required.

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18 views

Assignment- Goodwill

This is a assignment for the students of Accountancy and let me know if anything else is required.

Uploaded by

maxbotanic
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Monika Accounts Coaching Classes 1

Assignment: Valuation of Goodwill


1. A partnership business is being carried on successfully for the last ten years. Vijay decided to
join it as a partner for Rs. 80,000. Its profits for the last five years are Rs.12,000, Rs. 10,000, Rs.
11,000, Rs. 13,000 and Rs. 12,000. The management aspect of the business is looked after by the
proprietor himself. He has not taken any remuneration for the work, neither any record has
been made in the books of account regarding it. Find out the amount of goodwill if it is valued
on the basis of three years’ purchase of the average net profit of the last five years.
2. The average profit of a business over the last five years amounted to Rs. 6,000. The normal
commercial yield on capital invested in such a business is deemed to be 10% p.a. The net capital
invested in the business is Rs 50,000. Calculate the amount of goodwill, if it is based on 3 years’
purchase of last 5 years’ average profits.
3. A firm earned net profits during the last five years as follows:
Rs. 7,000, Rs. 6,500, Rs. 8,000, Rs. 7,500 and Rs. 6,000. The capital investment of the firm is Rs.
40,000. A fair return on capital in the market is 12%. Find out the value of goodwill of the
business if it is based on three years’ purchase of average super profits of the past five years.
4. The profit earner by Sharma over the last five years was Rs. 24,000, Rs. 18,000, Rs. 15,000,
Rs. 21,000 and Rs. 12,000. Find out the value of the goodwill of the business if it is based on 3
years’ purchase of the average profits of last five years. Also calculate the value of goodwill on
the basis of weighted average method.
5. Ajay and Vijay were partners from 1st April, 2001. They disclosed the profits for the last three
years.
2001-02 – Rs. 28,000 (Including an abnormal gain of Rs. 8,000)
2002-03 – Rs. 21,000 (Including an abnormal loss of Rs. 1,000)
2003-04 – Rs. 30,000 (Excluding Rs. 6,000 as insurance premium of the firm)
Calculate the value of the firm’s goodwill on the basis of 3 years purchase of the average profits
for the last 3 years.
6. The average net profits expected of a firm in future are Rs. 68,000 per year and capital invested
in the business by the firm is Rs. 3,50,000. The rate of interest expected from capita invested in
this class of business is 12%. The remuneration of the partners is estimated to be Rs. 8,000 for
the year. You are required to find out the value of good will on the basis of two years’ purchase
of super Profits.
7. On April 1, 2004 am existing firm had assets of Rs. 75,000 including cash of Rs. 5,000. The
partner’s capital accounts showed a balance of Rs. 60,000 and reserves constituted the rest. If
the normal rate of return is 20% and the goodwill of the firm is valued at Rs. 24,000 at 4 years
purchase of super profits, find the average profits of the firm.
8. The average profit of the firm is Rs. 1,50,000. The total tangible assets in the firm is Rs.
14,00,000 and outside liabilities are Rs. 4,00,000. In the same type of business, the normal rate
of return is 10% of the capital employed. Calculate the value of goodwill by capitalization of
super profit method.
Monika Accounts Coaching Classes 2
Assignment: Valuation of Goodwill
9. A firm earned net profits during the last five years as follows:

Rs.
1st year 20,000

2nd year 30,000

3rd year 35,000

4th year 25,000

5th year 40,000

The investment of capital in the firm is Rs. 2,00,000 and normal rate of return is 10% on capital
invested. Calculate the value of goodwill on the basis of 3 years’ purchase of average super
profits earned during the above mentioned 5 years.
10. The profits and losses for last five years were:
1st year – Rs.4,000 (including an abnormal gain of Rs.1,000)
2nd year – Rs. 8,000 (excluding Rs. 2,000 as insurance premium)
3rd year – Rs.2,000 (after charging an abnormal loss of Rs.1,000)
4th year – Rs.3,000
5th year – Rs.1,000 (Loss)
Calculate the amount of Goodwill on the basis of 2 years purchase of last 5 year profits and
losses.
11. A firm earns a profits of Rs.40,000 per year. In the same business 10% return is generally
expected. The total assets of the firm are Rs.3,00,000. The value of outsiders liabilities is
Rs.40,000. Find the value of Goodwill.
12. A firm has earned an average profit of Rs. 55,000 during the last year and the normal rate of
return in similar type of business is 10%. Find out the goodwill by capitalization method
assuming that the firm owns total assets worth Rs. 5,50,000 including therein a goodwill of
Rs.50,000 and the firm has to pay Rs.1,00,000 to the outside liabilities.
13. On 1st April 1994 an existing firm had assets of Rs.75,000 including cash of Rs. 5,000. Its
creditors amounted to Rs. 5,000 on that date. The firm had a Reserve Fund of Rs.10,000 while
partners capital accounts showed a balance of Rs.60,000. If the normal Rate of Return is 20%
and the goodwill of the firm is valued at Rs.24,000, at four years purchase of super profit, find
the average profit per year, of the existing firm.
Monika Accounts Coaching Classes 3
Assignment: Valuation of Goodwill

14. The profits of the firms of A, B and C were as under:

Year ended 31st March Profits (Rs.)

2001 30,000

2002 46,000

2003 34,000

2004 45,000

You are supplied the following information:

a) On 1st July, 2003 the firm purchased Machinery costing Rs.10,000 but it was charged to
revenue inadvertently. Depreciation @ 9% on straight line basis was also not charged on this
machinery.
b) During the year 2003-04, the personal expenses of Rs. 2,000 of each partners was debited to
traveling expenses of the firm.
c) Value of closing stock for the year ended 31st March, 2003 was found under valued by
Rs.1,000.
d) An annual insurance premium of Rs.500 was also not recorded in any of the years.

You are required to calculate adjusted profits of all the years and the value of goodwill on the
basis of two years purchases of weighted average profits. The weights of 1, 2, 3 and 4 may be
assigned to the profits of 2001, 2002, 2003, and 2004 respectively.

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