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12th Standard English Medium Accountancy Subject Goodwill In Partnership Accounts Book Back 2 Mark Questions with Solution Part - II updated Book back Questions

Published on: 13/05/2022

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Std: 12th Standard - Accountancy

chapter: - Book back Questions

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Questions:

Generic 2

5 x 2 = 10

What is normal rate of return?

What is super profit?

What is acquired goodwill?

From the following information, calculate the value of goodwill on the basis of 3 years purchase of average profits of last four years.
Year Result Amount
Rs. 2015 Profit 5,000 2016 Profit 8,000 2017 Loss 3,000 2018 Profit 6,000

From the following information, find out the value of goodwill by capitalisation method:
(a) Average profit = Rs. 60,000
(b) Normal rate of return = 10%
(c) Capital employed = Rs. 4,50,000

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Answers Key:

Generic 2

5 x 2 = 10

Normal rate of return refers to the rate at which profit is earned by similar business entities in the industry under normal circumstances.

Super profit is the excess of average profit over the normal profit. Average profit is calculated by dividing the total adjusted actual profit of certain number of years by the total number of such years. Normal profit is the profit earned by the similar business, firms under normal conditions.
Normal profit = Capital employed \(\times\) Normal rate of return.
Capital employed = Fixed assets + Current assets - Current liabilities.

Goodwill acquired by making payment in cash or kind is called acquired or purchased Goodwill when a firm purchase an existing business the price paid for purchase of such business may exceed the net assets (Assets - liabilities) of the business acquired.

Goodwill = Average profit \(\times\) Number of years of purchase
Average profit \(=\frac{Total\ profit}{Number\ of\ years}\)
\(=\frac{5,000+8,000-3,000+6,000}{4}\)
\(=\frac{16,000}{4}\) = Rs. 4,000
Average profit = Rs. 4,000
Goodwill = Average profit \(\times\) Number of years of purchase
4,000 \(\times\) 3 = 12,000
Goodwill = Rs. 12,000

Total capitalised value of the average profit = \(\frac { Average\ profit }{ Normal\ rate\ of\ return } \)\(\times\) 100
=\(\frac { 60,000 }{ 10 } \) \(\times\) 100
= Rs. 6,00,000
Goodwill = Total capitalised value of the average profit – Capital employed
= 6,00,000 – 4,50,000
= Rs. 1,50,000