1st Definition “Goodwill may be said to be that element arising from the reputation, connections, or other advantages possessed by a business which enables it to earn greater profits than the returns normally to be expected on capital represented by…
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Ajit and Baljit were sharing profits in the ratio of 3 : 2. They admit Chaman into the partnership for 1/6th share of future profits.
Solution:- Capital Employed = Assets – Liabilities Capital Employed = 15,00,000 – 12,00,000 = ₹ 3,00,000 Normal Profit = 3,00,000 × 10% = ₹ 30,000 Goodwill = ₹ 18,000 Goodwill = Super Profit × 4 year’s purchase Super Profit =…
Average Profit ₹ 4,40,000, Capital Employed ₹ 8,00,000; Normal Rate of Return 15%. Management Cost during this period is estimated to be ₹ 2,00,000. Calculate the value of goodwill on the basis of two years’ purchase of super profit.
Solution:- Average Profit for Valuation of Goodwil = ₹ 4,40,000 – ₹ 2,00,000 (Partner’s Remuneration) Average Profit for Valuation of Goodwill = ₹ 2,40,000 Normal Profit = Capital Employed × Normal Rate of Return Normal Profit = 8,00,000 × 15/100…
A firm earns a profit of ₹ 2,50,000. The Normal Rate of Return in a similar type of business is 10%.
Solution:- Capital Employed = Total Assets (Excluding goodwill) – Total Outside’s liabilities Capital Employed = ₹ 27,50,000 – ₹ 7,00,000 = ₹ 20,50,000 Normal Profit = Capital Employed × Normal Rate of Return Normal Profit = 20,50,000 × 10% Normal…
Find the Capitalised value of the business from the following information:
Ans – a) Solution:- Total Capitalised Value of firm = Average Profit/Normal Rate of Return × 100 Total Capitalised Value of firm = 8,00,000 × 100/20 = ₹ 40,00,000
Assertion (A): Goodwill is the value of the reputation of a firm in respect of the profits expected in the future over and above the super profits.
Ans – c) Explanation:- Goodwill is the present value of the expected super-profits of a firm. Thus Reason (R) is correct. The goodwill is not expected future profits above the super profits. Thus Assertion (A) is incorrect.
P, Q, and R are partners sharing profits and losses in the ratio of 2 : 2 : 1. They admit 5 for 1/5th share. For the purpose of admission of 5, the goodwill of the firm is to be valued at 3 years’ purchase of the average of 5 years’ profit or loss. The profits (Loss) are:
Ans – c) Solution:-
Under the average profit method of goodwill valuation, the value of goodwill is determined by
Ans – a) Explanation:- Goodwill = Average profit × no. of year’s purchase
Under the Capitalisation of Super Profit basis of goodwill valuation, goodwill is calculated by
Ans – d) Explanation:- Formula:- Super Profit/Rate of Return
Which of the following factors affects the value of goodwill?
Ans – d) Explanation:- Favorable Location, Favourable Contracts, and Efficiency of Management affect the value of goodwill.