12th Class – Accountancy – Chapter 2 – Worksheet 1

Chapter 2: Good Will
Important Questions

Average Profit Method

1. Profits for the five years ending on 31st March, are as following; Year 2015- Rs.4,00,000; year 2016-Rs.3,98,000; year 2017—Rs.4,50,000; year 2018 – Rs.4,45,000 and year 2019—Rs.5,00,000. Calculate goodwill of the firm on the basis of 4 years’ purchase of 5 years’ average profit.

2. Bharat and Bhushan are partners sharing profits in the ratio of 3:2. They decided to admit Manu as a partner from 1st April, 2019 on the following terms:
(i) Manu will be given 2/5th share of the profit. &nbsp &nbsp (ii) Goodwill of the firm will be valued at two years’ purchase of three years.
Normal average profit of the firm.
Profit of the previous three years ended 31st March, were:
2019---Profit Rs.30,000 (after debiting loss of stock by fire Rs.40,000).
2018---Loss Rs.80,000 (includes voluntary retirement compensation paid Rs1,10,000)
2017 ----Profit Rs.1,10,000 (including a gain (profit) of Rs.30,000 on the sale of fixed assets)
Calculate the value of goodwill.

Weighted Average Profit Method

3. A and B are partners sharing profits and losses in the ratio of 5:3. On 1st April, 2019, C is admitted to the partnership for 1/4th share of profits.
For this purpose, goodwill is to be valued at two years’ purchase of last three years’ profits (after allowing partners’ remuneration). Profits to be weighted 1:2:3 the greatest weight being given to last year. Net profit before partners’ remuneration were:
2016-17: Rs.2,00,000;
2017-18 Rs.2,30,000;
2018-19: Rs.2,50,000.
The remuneration of the partners is estimated to be Rs.90,000 p.a.
Calculate amount of goodwill.

Weighted Average Profit Method when Past adjustments are Made

4. Manbir and Nimrat are partners and they admit Anahat into partnership. It was agreed to value goodwill at three years’ purchase on Weighted Average Profit Method taking profits of last five years. Weights assigned to each year as 1,2,3,4 and respectively to profits for the year ended 31st March, 2015 to 2019.
The profits for these years were: Rs.70,000, Rs.1,40,000, Rs.1,00,000, Rs.1,60,000 and Rs.1,65,000 respectively.
Scrutiny of books of account revealed following information:
(i) There was an abnormal loss of Rs.20,000 in the year ended 31st March,2015.
(ii) There was an abnormal gain (profit) of Rs.30,000 in the year ended 31st March, 2016.
(iii) Closing Stock as on 31st March,2018 was overvalued by Rs.10,000.
Calculate the value of goodwill.

Super Profit Method

5. Average profit earned by a firm is Rs.80,000 which includes undervaluation of stock of Rs. 8,000 on an average basis. The capital invested in the business is Rs.8,00,000 and the normal rate of return is 8%.
Calculate goodwill of the firm on the basis of 7 times the super profit.

6. Rakesh and Ashok earned a profit of Rs.5,000. They employed capital of Rs.25,000 in the firm. It is expected that the normal rate of return is 15% of the capital.
Calculate amount of goodwill if goodwill is valued at three years’ purchase of super profit.

Super Profit Method when Past Adjustments are Made

7. Ayub and Amit are partners in a firm and they admit Jaspal into partnership w.e.f. 1st April, 2019. They agreed to value goodwill at 3 years’ purchase of Super Profit Method for which they decided to average profit of last 5 years.
The profits for the last 5 years were:
Year Ended &nbsp &nbsp &nbsp &nbsp &nbsp &nbsp &nbsp &nbsp &nbsp &nbsp Net Profit (Rs.)
31st March,2015 &nbsp &nbsp &nbsp &nbsp &nbsp 1,50,000
31st March,2016 &nbsp &nbsp &nbsp &nbsp &nbsp 1,80,000
31st March,2017 &nbsp &nbsp &nbsp &nbsp &nbsp 1,00,000 (Including abnormal loss of Rs.1,00,000)
31st March,2018 &nbsp &nbsp &nbsp &nbsp &nbsp 2,60,000 (Including abnormal gain(profit) of Rs.1,00,000)
31st March,2019 &nbsp &nbsp &nbsp &nbsp &nbsp 2,40,000
The firm has total assets of Rs.20,00,000 and Outside Liabilities of Rs.5,00,000 as on that date. Normal Rate of Return in similar business is 10%.
Calculate value of goodwill.

Capitalization Method

8. A firm earns profit of Rs.5,00,000. Normal Rate of Return in a similar type of business is 10%. The value of total assets (excluding goodwill) and total outsiders’ liabilities as on the date of goodwill are Rs.55,00,000 and Rs.14,00,000 respectively.
Calculate value of goodwill according to Capitalization of Super Profit Method as well as Capitalisation of Average Profit Method.

9. Average profit of GS & Co. is Rs.50,000 per year. Average capital employed in the business is Rs.3,00,000. If the normal rate on capital employed is 10%.
Calculate goodwill of the firm by:
(i) Super Profit Method at three years’ purchase; and
(ii) Capitalisation of Super Profit Method.

10. Ajeet and Baljeet are partners in a firm. Their capitals are Rs.9,00,000 and Rs.6,00,000 respectively. During the year ended 31st March, 2019 the firm earned a profit of Rs.4,50,000.
Assuming that the normal rate of return is 20%, calculate value of goodwill of the firm:
(i) By Capitalisation Method; and
(ii) By Super Profit Method if the goodwill is valued at 2 years’ purchase of super profit.

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