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OMTEX CLASSES

“The Home of success”

GOODWILL QUESTIONS AND THEIR SOLUTIONS HSC MAHARASHTRA STATE BOARD

1. The profits of the firm for the last five years are 2002 Rs. 20,000; 2003 Rs. 16,000; 2004 Rs. 24,000; 2005 Rs. 8000; 2006 Rs. 12,000. Calculate the goodwill of the firm. [Ans. Rs. 16,000]

SOLUTION:

M/S

VALUATION OF GOODWILL

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT =

++++

=

=

= .

GOODWILL = 16000 ×

GOODWILL = 16000

OMTEX CLASSES

“The Home of success”

GOODWILL QUESTIONS AND THEIR SOLUTIONS HSC MAHARASHTRA STATE BOARD

2. Mona, Reena and Sona have been carrying on a partnership business and good will of their firm is to be valued at three years purchase of the average profit for the last five years. The profit and losses for the last five years have been. 1 st Year Rs. 16,000, 2 nd Year, 15,000, 3 rd Year, 8,000(Loss), 4 th Year, 7,000, 5 th Year, 10,000. [Ans. Rs. 24,000]

SOLUTION:

M/S MONA, REENA & SONA CO

VALUATION OF GOODWILL

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT =

+++

=

=

= .

GOODWILL = 8000 ×

GOODWILL = Rs. 24000

OMTEX CLASSES

“The Home of success”

GOODWILL QUESTIONS AND THEIR SOLUTIONS HSC MAHARASHTRA STATE BOARD

3. Calculate the good will from the following information goodwill is valued at three years purchase of average profit of the last six years. Profit and losses of the business in the last six years are as follows, [Ans. Rs. 95,000]

 1 st year, Rs, 40,000(Profit) 2 nd Year, 3 rd Year, 4 th Year, 5 th Year, Rs, 60,000(Profit) Rs, 10,000(Loss) Rs, 50,000(Profit) Rs, 30,000 (Loss) 6 th Year, Rs, 80,000(Profit)

SOLUTION:

M/S

VALUATION OF GOODWILL

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT =

+++

=

=

= .

GOOD WILL =

×

GOODWILL = Rs. 95000

OMTEX CLASSES

“The Home of success”

GOODWILL QUESTIONS AND THEIR SOLUTIONS HSC MAHARASHTRA STATE BOARD

4. Calculate the value of goodwill according to average profit method. Goodwill is valued at three years purchase of last four year average profit. The profits and losses for the last four years are. [Ans. Rs. 27,000]

 1 st Year Rs, 10,000(Profit) 2 nd Year Rs, 12,000(Profit) 3 rd Year Rs, 4,000(Loss) 4 th Year Rs, 18,000(Profit)

SOLUTION:

M/S

VALUATION OF GOODWILL

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT =

++

=

=

= .

GOODWILL = 9000 ×

GOODWILL = Rs. 27000

5. The profit of a firm for the four years from 1991 to 1994 where_ [Ans. Rs. 1, 02,000]

 1991 Rs, 40,000 1992 Rs, 45,000 1993 Rs, 55,000

OMTEX CLASSES

“The Home of success”

GOODWILL QUESTIONS AND THEIR SOLUTIONS HSC MAHARASHTRA STATE BOARD

1994

Rs, 53,000

Calculate the goodwill of the firm at 2yrs. Purchase of the average profit for the last three years.

SOLUTION:

M/S

VALUATION OF GOODWILL

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT =

++

=

=

= .

GOODWILL = 51000 ×

GOODWILL =Rs. 1,02,000

OMTEX CLASSES

“The Home of success”

GOODWILL QUESTIONS AND THEIR SOLUTIONS HSC MAHARASHTRA STATE BOARD

6. Mr. X a businessperson has earned the following profits in the last five years.

 1995 1, 05,800 1994 1, 02,600 1993 98,400 1992 96,800 1991 95,500

Value goodwill of Mr. X on the basis of three years purchase of average of the past five years. [Ans. Rs. 2,99,460]

SOLUTION:

M/S X Co.

VALUATION OF GOODWILL

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT =

++++

=

=

=

GOODWILL = 99820 ×

GOODWILL = Rs. 299460

OMTEX CLASSES

“The Home of success”

GOODWILL QUESTIONS AND THEIR SOLUTIONS HSC MAHARASHTRA STATE BOARD

7. Good will is valued at three years purchase of last five years average profit. The profits for the last five years are. [Ans. 0]

 1 st Year 4,800(p) 2 nd Year 7,200(L) 3 rd Year 10,000(L) 4 th Year 3,000(P) 5 th Year 5,000(L)

Note: - Since the company’s average profit is negative. Therefore the firm’s goodwill is zero.

SOLUTION:

M/S

VALUATION OF GOODWILL

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT =

−−+

=

=

=

GOODWILL = 0

GOODWILL = 0

Note: Since the company’s Average profit is negative therefore, the firms goodwill is zero.

8. Compute the goodwill the following case good will is valued at three years purchase of average profit of five years. The Profit of the five years were_ [Ans. Rs. 26,400]

 1 st Year 5,800 2 nd Year 3 rd Year 7,400 20,000

OMTEX CLASSES

“The Home of success”

GOODWILL QUESTIONS AND THEIR SOLUTIONS HSC MAHARASHTRA STATE BOARD

 4 th Year 3,500 5 th Year 7,300

SOLUTION:

M/S

VALUATION OF GOODWILL

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT =

++++

=

=

=

GOODWILL = 8800 ×

GOODWILL = 26400

OMTEX CLASSES

“The Home of success”

GOODWILL QUESTIONS AND THEIR SOLUTIONS HSC MAHARASHTRA STATE BOARD

9. A firm with an average capital employed of R s. 1, 60,000 is expected to earn Rs, 40,000 per annum in future. Calculate goodwill at three times the super profit taking the normal rate of return as 15%. [Ans. Rs.

48,000]

M/S

VALUATION OF GOODWILL

SUPER PROFIT METHOD

GOODWILL = (SUPER PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : - SUPER PROFIT = AVERAGE PROFIT NORMAL PROFIT - REMUNERATION

WHERE : AVERAGE PRFIT =

= Rs. 40000

WHERE: NORMAL PROFIT = CAPITAL EMPLOYED ×N.R.R.

NORMAL PROFIT = 160000 × 15 %

NORMAL PROFIT = Rs. 24000

WHERE: REMUNERATION = Rs. NIL

SUPER PROFIT = 40000-24000-NIL

GOODWILL = 16000 ×

GOODWILL = Rs. 48000

OMTEX CLASSES

“The Home of success”

GOODWILL QUESTIONS AND THEIR SOLUTIONS HSC MAHARASHTRA STATE BOARD

10. Capital employed on 31 st December, 1990 was Rs, 1, 00,000/-. The Profits earned by the business for the last 5 years where. [Ans. Rs. 87,000]

 1986 30,000 1987 40,000 1988 50,000 1989 40,000 1990 60,000

Normal rate of return is 15%. Good will is valued at 3 years purchase of the super profits of the business. Find out the value of goodwill.

M/S

VALUATION OF GOODWILL

SUPER PROFIT METHOD

GOODWILL = (SUPER PROFIT) × (NUMBER OF YEARS PURCHASE)

WHERE : - SUPER PROFIT = AVERAGE PROFIT NORMAL PROFIT - REMUNERATION

WHERE : AVERAGE PRFIT =

++++

=

=

=

Rs. 44000

WHERE: NORMAL PROFIT = CAPITAL EMPLOYED ×N.R.R.

NORMAL PROFIT = 100000 × 15 %

NORMAL PROFIT = Rs. 15000

WHERE: REMUNERATION = Rs. NIL

SUPER PROFIT = 44000-15000-NIL

GOODWILL = 29000 ×

GOODWILL = Rs. 87000

OMTEX CLASSES

“The Home of success”

GOODWILL QUESTIONS AND THEIR SOLUTIONS HSC MAHARASHTRA STATE BOARD

11. The books of a business showed that the capital employed on 31 st December, 1992 was Rs.1, 00,000/-. Profits for the last five years are_1988, 1989, 1990, 1991 & 1992 were Rs, 60,000, Rs, 55,000, Rs, 75,000, Rs, 85,000 & Rs, 65,000 respectively. Goodwill is valued at 2 years purchase of the Super profit of the business. NRR is 10%. [Ans. Rs. 1, 16,000]

M/S

VALUATION OF GOODWILL

SUPER PROFIT METHOD

GOODWILL = (SUPER PROFIT) × (NUMBER OF YEARS PURCHASE)

WHERE : - SUPER PROFIT = AVERAGE PROFIT NORMAL PROFIT - REMUNERATION

WHERE : AVERAGE PRFIT =

++++

=

=

=

Rs. 68000

WHERE: NORMAL PROFIT = CAPITAL EMPLOYED ×N.R.R.

NORMAL PROFIT = 100000 × 10 %

NORMAL PROFIT = Rs. 10000

WHERE: REMUNERATION = Rs. NIL

SUPER PROFIT = 68000-10000-NIL

GOODWILL = 58000 ×

GOODWILL = Rs. 116000

OMTEX CLASSES

“The Home of success”

GOODWILL QUESTIONS AND THEIR SOLUTIONS HSC MAHARASHTRA STATE BOARD 12.M/s XYZ partnership firm earned net profit during the last four years were Rs, 7,000. Rs, 13,000. Rs, 12,000 and Rs, 8,000. The capital investment made in the firm was Rs, 50,000. N.R.R on capital is 15%. The remuneration of the partners during the period is Rs, 500 p.a. Good will is valued at 2 Yrs purchase of Average super profit of the above mentioned years. [Ans. Rs. 4,000]

M/S XYZ CO

VALUATION OF GOODWILL

SUPER PROFIT METHOD

GOODWILL = (SUPER PROFIT) × (NUMBER OF YEARS PURCHASE)

WHERE : - SUPER PROFIT = AVERAGE PROFIT NORMAL PROFIT - REMUNERATION

WHERE : AVERAGE PRFIT =

=

+++

=

=

Rs. 10000

WHERE: NORMAL PROFIT = CAPITAL EMPLOYED ×N.R.R.

NORMAL PROFIT = 15000 × 15 %

NORMAL PROFIT = Rs. 7500

WHERE: REMUNERATION = Rs. 500

SUPER PROFIT = 10000-7500-500

GOODWILL = 2000 ×

GOODWILL = Rs. 4000

OMTEX CLASSES

“The Home of success”

GOODWILL QUESTIONS AND THEIR SOLUTIONS HSC MAHARASHTRA STATE BOARD 13.M/s Vijay trading company earned net profit during the last four years was follows.

 1 st Year Rs, 57,000 2 nd Year 3 rd Year Rs, 44,000 Rs, 61,000 4 th Year Rs, 58,000

The capital investment made by the company is Rs, 1, 50,000. Normal Rate of return on capital is 20%. The remuneration of the partners during this period is Rs, 500 p.m. Good will is valued at 2years purchase of Average Super profit of above mentioned period.

M/S VIJAY CO

VALUATION OF GOODWILL

SUPER PROFIT METHOD

GOODWILL = (SUPER PROFIT) × (NUMBER OF YEARS PURCHASE)

WHERE : - SUPER PROFIT = AVERAGE PROFIT NORMAL PROFIT - REMUNERATION

WHERE : AVERAGE PRFIT =

+++

=

=

=

Rs. 55000

WHERE: NORMAL PROFIT = CAPITAL EMPLOYED ×N.R.R.

NORMAL PROFIT = 150000 × 20 %

NORMAL PROFIT = Rs. 30000

WHERE: REMUNERATION = Rs. 500 × =

SUPER PROFIT = 55000-30000-6000

GOODWILL = 19000 ×

GOODWILL = Rs. 38000