Page 64 - DEBKVOL-1

3.6 Double Entry Book Keeping—CBSE XII
Solution:
Average Profit ¥ 100
Capitalised Value of the Business =
Normal Rate of Return
100
= 90,000 ¥ = ` 9,00,000
10
Capital Employed = ` 2,00,000 + ` 2,40,000 + ` 50,000 – ` 10,000 = ` 4,80,000
Goodwill = ` 9,00,000 – ` 4,80,000 = ` 4,20,000.

Illustration 9.
From the following information, calculate value of goodwill of M/s. Amit and Sumit:
(i) At three years’ purchase of Average Profit.
(ii) At the two years’ purchase of Super Profit.
(iii) On the basis of Capitalisation of Super Profit.

(iv) On the basis of Capitalisation of Average Profit.
Information:
(a) Average Capital Employed—` 6,00,000.
(b) Net Profit/Loss of the firm for the past three years: 2016—` 2,00,000 (Profit); 2017—` 1,00,000
(Loss); 2018—` 2,30,000 (Profit).
(c) Normal Rate of Return on capital is 12%.
(d) Remuneration of each partner ` 30,000 per annum to be considered as a charge against
profit.
(e) Assets—` 6,50,000; Partners’ Capital—` 6,00,000.
Solution:
(i) Calculation of Goodwill at three years’ purchase of Average Profit:
` 2,00,000 - 1,00,000` + 2,30,000`
Average Profit = = ` 1,10,000
3
Average Normal Profit = Average Profit – Partners’ Remuneration
= ` 1,10,000 – ` 60,000 = ` 50,000
Value of Goodwill = Average Normal Profit × Number of Years’ Purchase
= ` 50,000 × 3 = ` 1,50,000.
(ii) Calculation of Goodwill at three years’ purchase of Super Profit:
Normal Profit = Capital Employed × Normal Rate of Return/100
= ` 6,00,000 × 12/100 = ` 72,000
Super Profit = Average Profit – Normal Profit
= ` 50,000 – ` 72,000 = (` 22,000)
Since the firm does not have Super Profit, the value of goodwill is nil.
(iii) On the basis of Capitalisation of Super Profit:
The firm does not have Super Profit. Hence, the value of goodwill is nil.