From the Following Information, Calculate Value of Goodwill of the Firm - Goodwill - Bzziii.com
From the following information, calculate value of goodwill of the firm:
(i) At three years' purchase of Average Profit.
(ii) At three 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 is ₹ 6,00,000.
(b) Net Profit/(Loss) of the firm for the last three years ended are:
31st March, 2018 − ₹ 2,00,000,
31st March, 2017 − ₹ 1,80,000, and
31st March, 2016 − ₹ 1,60,000.
(c) Normal Rate of Return in similar business is 10%.
(d) Remuneration of ₹ 1,00,000 to partners is to be taken as charge against profit.
(e) Assets of the firm (excluding goodwill, fictitious assets and non-trade investments) is ₹ 7,00,000 whereas Partners' Capital is ₹ 6,00,000 and Outside Liabilities ₹ 1,00,000.
![]()
Calculation for Capital Employed
Capital Employed = Total Asset - Outside Liabilities
= Rs. (7,00,000 - 1,00,000)
= Rs. 6,00,000.
Calculation for Average Profit
Average Profit = `"Past Years Total Profit"/"No. of Years"`
= Rs. `"2,00,000 + 1,80,000 + 1,60,000"/3`
= Rs. 1,80,000.
Average Profit = 1,80,000 - 1,00,000 (Remuneration of Partners)
= Rs. 80,000.
Calculation for Normal Profit
Normal Profit = Capital Employed x `"Normal Rate of Return"/100`
= Rs. 6,00,000 x `"10"/"100"`
= Rs. 60,000.
Calculation for Super Profit
Super Profit = Average Profit - Normal Profit
= Rs. (80,000 - 60,000)
= Rs. 20,000.
(i) Goodwill = Average Profit x No. of Year Purchase
= Rs. 80,000 x 3
= Rs. 2,40,000.
(ii) Goodwill = Super Profit x No. of Year Purchase
= Rs. 20,000 x 3
= Rs. 60,000.
(iii) Goodwill = Super Profit x `"100"/"Normal Rate of Return"`
= Rs. 20,000 x `"100"/"10"`
= Rs. 2,00,000.
(iv) Goodwill = Capitalised Value - Net Asset
= Rs. (8,00,000 - 6,00,000)
= Rs. 2,00,000.
(i) At three years' purchase of Average Profit.
(ii) At three 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 is ₹ 6,00,000.
(b) Net Profit/(Loss) of the firm for the last three years ended are:
31st March, 2018 − ₹ 2,00,000,
31st March, 2017 − ₹ 1,80,000, and
31st March, 2016 − ₹ 1,60,000.
(c) Normal Rate of Return in similar business is 10%.
(d) Remuneration of ₹ 1,00,000 to partners is to be taken as charge against profit.
(e) Assets of the firm (excluding goodwill, fictitious assets and non-trade investments) is ₹ 7,00,000 whereas Partners' Capital is ₹ 6,00,000 and Outside Liabilities ₹ 1,00,000.
Calculation for Capital Employed
Capital Employed = Total Asset - Outside Liabilities
= Rs. (7,00,000 - 1,00,000)
= Rs. 6,00,000.
Calculation for Average Profit
Average Profit = `"Past Years Total Profit"/"No. of Years"`
= Rs. `"2,00,000 + 1,80,000 + 1,60,000"/3`
= Rs. 1,80,000.
Average Profit = 1,80,000 - 1,00,000 (Remuneration of Partners)
= Rs. 80,000.
Calculation for Normal Profit
Normal Profit = Capital Employed x `"Normal Rate of Return"/100`
= Rs. 6,00,000 x `"10"/"100"`
= Rs. 60,000.
Calculation for Super Profit
Super Profit = Average Profit - Normal Profit
= Rs. (80,000 - 60,000)
= Rs. 20,000.
(i) Goodwill = Average Profit x No. of Year Purchase
= Rs. 80,000 x 3
= Rs. 2,40,000.
(ii) Goodwill = Super Profit x No. of Year Purchase
= Rs. 20,000 x 3
= Rs. 60,000.
(iii) Goodwill = Super Profit x `"100"/"Normal Rate of Return"`
= Rs. 20,000 x `"100"/"10"`
= Rs. 2,00,000.
(iv) Goodwill = Capitalised Value - Net Asset
= Rs. (8,00,000 - 6,00,000)
= Rs. 2,00,000.
Join the conversation