**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 |

**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 |

**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, | Rs, 60,000(Profit) |

3^{rd} Year, | Rs, 10,000(Loss) |

4^{th} Year, | Rs, 50,000(Profit) |

5^{th} Year, | 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 |

**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 |

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 |

**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 |

**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 | 7,400 |

3 ^{rd} Year | 20,000 |

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 |

**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 |

**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 |

**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 |

**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 |

**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 | Rs, 44,000 |

3 ^{rd} Year | 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 |