The document discusses various methods of valuing goodwill, including the average profit method, super profit method, and capitalization method. Under the average profit method, goodwill is calculated as the adjusted average profit multiplied by the number of years of purchase. The super profit method calculates goodwill as the super profit (adjusted average profit less normal profit) multiplied by the number of years of purchase. Worked examples are provided to illustrate calculating goodwill under both the simple average method and weighted average method for the average profit and super profit approaches.
What is Agricultural Income ?
Section 2 (1A) of the Income tax Act,1961
Agricultural income means :
Revenue generated through rent or lease of a land in India that is used for agricultural purposes ;
Any income derived from commercial sale of produce gained from an agricultural land
Any income from farm building.
Key points to validly classify an income as “agricultural income”
Income should be from an existent piece of land in India ;
Income should be from a piece of land that is used for agricultural operations ;
Income should stem from produce achieved after cultivation of the land. Cultivation of land is a must ;
Income can be from a land that is not under the assessee’s ownership. i.e. ownership of Land is not essential.
What is Agricultural Income ?
Section 2 (1A) of the Income tax Act,1961
Agricultural income means :
Revenue generated through rent or lease of a land in India that is used for agricultural purposes ;
Any income derived from commercial sale of produce gained from an agricultural land
Any income from farm building.
Key points to validly classify an income as “agricultural income”
Income should be from an existent piece of land in India ;
Income should be from a piece of land that is used for agricultural operations ;
Income should stem from produce achieved after cultivation of the land. Cultivation of land is a must ;
Income can be from a land that is not under the assessee’s ownership. i.e. ownership of Land is not essential.
Its about economics reforms that were introduced in 1991.
why such reforms were needed ?
what was situation at that time ?
what were the achievement and limitations of economic reforms ?
This is one of the hardest topic in Accounting. To make it easier I have prepared this one. It is according to AS 7. These are some of the basics of Contract Accounting. How to account Contact?
Like if it proves to be useful for you.
All the three methods of national income accounting are explained with mathematical questions and answers. It is very helpful for the NCERT and SCERT plus two commerce and humanities students who have to learn these methods in the second chapter of macroeconomics.
Notes on Valuation of Goodwill and Shares For BBA/B.com studentsYamini Kahaliya
the document contains Notes on Valuation of Goodwill and Shares
{Goodwill may be described as the aggregate of those intangible attributes of a business which contributes to its superior earning capacity over a normal return on investment}
{The share capital is the most important requirement of a business. It is divided into a ‘number of indivisible units of a fixed amount. These units are known as ‘shares’. }
Its about economics reforms that were introduced in 1991.
why such reforms were needed ?
what was situation at that time ?
what were the achievement and limitations of economic reforms ?
This is one of the hardest topic in Accounting. To make it easier I have prepared this one. It is according to AS 7. These are some of the basics of Contract Accounting. How to account Contact?
Like if it proves to be useful for you.
All the three methods of national income accounting are explained with mathematical questions and answers. It is very helpful for the NCERT and SCERT plus two commerce and humanities students who have to learn these methods in the second chapter of macroeconomics.
Notes on Valuation of Goodwill and Shares For BBA/B.com studentsYamini Kahaliya
the document contains Notes on Valuation of Goodwill and Shares
{Goodwill may be described as the aggregate of those intangible attributes of a business which contributes to its superior earning capacity over a normal return on investment}
{The share capital is the most important requirement of a business. It is divided into a ‘number of indivisible units of a fixed amount. These units are known as ‘shares’. }
Valuation of Goodwill (12th commerce / Management Accounting)Yamini Kahaliya
the presentation covers the following points -
Meaning
Characteristics of goodwill
Nature of goodwill
Factors affecting goodwill
Classification of goodwill
Need for valuation of goodwill
Methods of valuation of goodwill
Exercise (Do it yourself)
Accounting for Business Major Assignment SP3 2014 Instructions.docxannetnash8266
Accounting for Business Major Assignment SP3 2014 Instructions
Due Date Monday 5th January 2015 1.00pm Assignments must be submitted through the Turnitin link on the subject portal
Groups up to 3 students maximum are permitted.
Assignment must be in word format only.
All calculations and workings must be shown to receive any marks for each question
Do not include the question in your answers!
Question 1
Mark Davies has started a lawn mowing business (MD Lawnmowing) as a temporary job/business which he intends to run until he starts his business degree at the University of South Australia in four months. Mark has never owned or run a business before. To start the business on 1 March 2014, he deposited $2,400 into a new bank account opened in the name of the business. The $2,400 consisted of a $2000 loan from his father and $400 of his own money. Mark rented some equipment, purchased supplies, and hired friends to mow and trim his customer’s lawns.
At the end of each month Mark sent invoices to his customers. On 30th June, he was ready to dissolve the business and start his university studies. As he was so busy, he kept few records other than his cheque book and a list of amounts owed to him by customers.
At 30 June, Mark’s business account cheque book shows a balance of $1,900, and his customers still owe him $500. During the period, he collected $4,800 from customers. His cheque book lists payments for supplies totalling $510, and he still has fuel and supplies that cost a total of $65 on hand. He paid his employees $2,000, and he still owes them $400 for their final week of work.
Mark rented some equipment from Kennard’s Hire. On 1 April, he signed a six-month rental agreement on lawnmowers and paid $720 for the full period. Kennard’s Hire will refund the unused portion of the prepayment if the equipment is in good order when he returns it. In order to get the refund, Mark has kept the equipment in excellent condition. In fact during May paid $250 to repair one of the mowers.
To transport employees and equipment to jobs, Mark used a trailer that he bought for $660. He believes that the period’s work used up one-third of the trailer’s service potential. The business cheque book lists a payment of $660 for private cash withdrawals by Mark during the period. In June Mark paid back a quarter of the amount his father had lent to him.
Mark estimates that he spent approximately 80 hours working on the business during the period. He plans to recommence operations on a similar basis during major breaks in his university study and believes he will do better in later periods as he now has an existing customer base to work from.
Required
1. Prepare the business Income Statement for the period.
(9 marks)
2. Prepare the classified Balance Sheet at the end of the period.
(11 marks)
3. Was Mark’s venture successful? Give the reasons for your answer. 150 – 250 words only.
(5 marks)
Total for Quest.
Assignment Capital Budget Decision Making for an Organization—Par.docxrobert345678
Assignment: Capital Budget Decision Making for an Organization—Part 2
Note: In Week 6, you submitted Part 1 of the Module 3 Assignment.
You will complete and submit Part 2 this week. Next week, you will complete and submit Part 3 and the executive summary.
As a reminder, you will continue to play the role of a consultant who has been hired by a mid-sized company that recently went public to provide some recommendations related to their short-term and long-term financial needs. Your first project is to analyze the short- and long-term capital budget needs of the company. You will prepare and submit a 3- to 5-page report, including an executive summary in which you synthesize your recommendations for the following fiscal year, along with the provided Excel spreadsheet with your calculations. Explain your findings and your recommendations.
For each of the items in your report, you will complete the calculations in the Module 3 Assignment Part 1 Template and will then use that financial information to develop your report to the owner using the Module 3 Assignment Part 2 Template. In your report, be sure to include relevant citations from the Learning Resources, the Walden Library, and/or other appropriate academic sources to support your work.
To prepare for this Assignment:
· Return to the Module 3 Assignment Part 1 Template to continue completing the calculations.
· Return to your Module 3 Assignment Part 2 Template to complete Part 2 of your report.
Note: Be sure to keep a copy of your completed Assignment this week, as you will be adding to the same file for your Week 8 Assignment.
By Day 7
Submit your synthesis of financial data related to long-term financing needs for an organization, to include the following:
Part 2: Long-Term Working Capital Considerations: Time Value of Money and Bonds (1–2 pages, plus calculations in Excel)
·
Future Value: If the company deposits $2 million in a bank account that pays 6% interest annually, how much will be in the account after 5 years?
·
Present Value: What is the present value of a security that will pay $29,000 in 20 years if securities of equal risk pay 5% annually?
·
Required Interest Rates: The company owner has said she will retire in 19 years. She currently has $350,000 saved and thinks she will need $800,000 at retirement. What annual interest rate must she earn to reach that goal, assuming she does not save any additional funds?
·
Future Value of an Annuity: Find the future values of these ordinary annuities. Compounding occurs once a year.
· $500 per year for 8 years at 14%
· $250 per year for 4 years at 7%
· $700 per year for 4 years at 0%
·
Present Value of an Annuity: Find the present values of these ordinary annuities. Discounting occurs once a year.
· $600 per year for 12 years at 8%
· $300 per year for 6 years at 4%
· $500 per .
2024.06.01 Introducing a competency framework for languag learning materials ...Sandy Millin
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Published classroom materials form the basis of syllabuses, drive teacher professional development, and have a potentially huge influence on learners, teachers and education systems. All teachers also create their own materials, whether a few sentences on a blackboard, a highly-structured fully-realised online course, or anything in between. Despite this, the knowledge and skills needed to create effective language learning materials are rarely part of teacher training, and are mostly learnt by trial and error.
Knowledge and skills frameworks, generally called competency frameworks, for ELT teachers, trainers and managers have existed for a few years now. However, until I created one for my MA dissertation, there wasn’t one drawing together what we need to know and do to be able to effectively produce language learning materials.
This webinar will introduce you to my framework, highlighting the key competencies I identified from my research. It will also show how anybody involved in language teaching (any language, not just English!), teacher training, managing schools or developing language learning materials can benefit from using the framework.
Introduction to AI for Nonprofits with Tapp NetworkTechSoup
Dive into the world of AI! Experts Jon Hill and Tareq Monaur will guide you through AI's role in enhancing nonprofit websites and basic marketing strategies, making it easy to understand and apply.
Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
Honest Reviews of Tim Han LMA Course Program.pptxtimhan337
Personal development courses are widely available today, with each one promising life-changing outcomes. Tim Han’s Life Mastery Achievers (LMA) Course has drawn a lot of interest. In addition to offering my frank assessment of Success Insider’s LMA Course, this piece examines the course’s effects via a variety of Tim Han LMA course reviews and Success Insider comments.
Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
The French Revolution, which began in 1789, was a period of radical social and political upheaval in France. It marked the decline of absolute monarchies, the rise of secular and democratic republics, and the eventual rise of Napoleon Bonaparte. This revolutionary period is crucial in understanding the transition from feudalism to modernity in Europe.
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Safalta Digital marketing institute in Noida, provide complete applications that encompass a huge range of virtual advertising and marketing additives, which includes search engine optimization, virtual communication advertising, pay-per-click on marketing, content material advertising, internet analytics, and greater. These university courses are designed for students who possess a comprehensive understanding of virtual marketing strategies and attributes.Safalta Digital Marketing Institute in Noida is a first choice for young individuals or students who are looking to start their careers in the field of digital advertising. The institute gives specialized courses designed and certification.
for beginners, providing thorough training in areas such as SEO, digital communication marketing, and PPC training in Noida. After finishing the program, students receive the certifications recognised by top different universitie, setting a strong foundation for a successful career in digital marketing.
Welcome to TechSoup New Member Orientation and Q&A (May 2024).pdfTechSoup
In this webinar you will learn how your organization can access TechSoup's wide variety of product discount and donation programs. From hardware to software, we'll give you a tour of the tools available to help your nonprofit with productivity, collaboration, financial management, donor tracking, security, and more.
Read| The latest issue of The Challenger is here! We are thrilled to announce that our school paper has qualified for the NATIONAL SCHOOLS PRESS CONFERENCE (NSPC) 2024. Thank you for your unwavering support and trust. Dive into the stories that made us stand out!
1. Unit 2
Goodwill
Needs,
Circumstance of valuation Goodwill
Factors influencing the value of goodwill
Methods of Goodwill
Average Profit Method & Super Profit Method
Capitalization of Average Profit Method & Capitalization of
Super Profit Method
Annuity Method – Problems and solutions of the above
2. Goodwill
Goodwill- Good name, Value of Reputation (opinion)
Advantages – attract the new customers, Retain the
existing customers, helps to earning more income in
future.
“Present value of the firm’s anticipated excess earnings
in future”.
“Capacity of a business to earn super profit in future”
“Excess of Purchase Price of another company (
Difference between fair market value of assets and
Liabilities)”
3. Characteristics and merits of Goodwill
Intangible real assets
Easy to describe but not define
inseparable from company
fluctuating nature
indefinite usage life
Distinguish between old and new business
Factor to earn more super profit (Avg. Profit-NRR)
4. Circumstance / need of valuation of
goodwill
1) In the case of sole trading company
a) When it is sold
b) when it is converted into joint stock
company
c) when it is amalgamated with another
company
2) In the case of partnership firm
a) on the admission of partner
b) on the retirement
c) on the death
d) on the sale of partnership or amalgamation
5. 3) In the case of joint stock company
a) on the amalgamation of the company
b) on the absorption of the company
c) external reconstruction of the company
d) Acquisition of majority of shares
e) Purpose of valuation of shares
6. Factors affecting the Goodwill
Location of the company
Quality of the goods and servics
Efficiency of the management
Technical Know-How
Business Risk
Nature of the Business and Levels of competition
Trademark and Paten
Level of Capital
7. Types of Goodwill
Dog Goodwill – Loyal and Faithful customer base ,
Attached with the owner but not location of business
Rat Goodwill – Attached with neither person nor place
of the business
Cate Goodwill – Best Goodwill, Progressively loyal to
the brand and organization or Authority
8. Methods of Valuation of Goodwill
I. Average Profit Method
A) Simple Average Profit Method
B) Weighted Average Profit Method
II. Super Profit Method
a) Simple Average or Weighted Average Method
III. Capitalization method
a) Capitalization of Simple/Weighted Average Profit
Method
b) Capitalization of Super Profit Method
IV. Annuity Profit Method
9. I. Average Profit Method
1. Simple Average Profit Method
2. Weighted Average Profit Method
Simple average Profit Method
Goodwill = Adjusted Average Profit x Number of Purchase of Years
*Adjusted Average Profit = Adjusted Profit of all years / No of Years
*Adjusted Profit = Net Profit+(Regular Incomes likely to occur +
abnormal expenses not likely to incur in Future) – (Irregular or
Capital income + regular Expenses likely to occur in future)
10. Profit Given xxxxxxx
Add : Expenses and Losses not likely to occur in future xxxxxxx
(Abnormal or irregular, loss, salary Capital exp etc)
Add : All profit likely to come in future xxxxxxx
----------
xxxxxxxx
Less : All Expenses and losses Expected to occur in future
(salary, insurance, Depreciation, Cost to Management etc) xxxxxxx
Less: Profit not likely to recur in future xxxxxxx
--------------------
Adjusted profit of the year xxxxxxx
Finding of Adjusted Profit
11. Example: G & Co. decided to purchase a business. Its profits
for the last 4 years were
Year 1998 – Rs.40,000,
Year 1999- Rs.50,000,
Year 2000 – Rs.48,000,
Year 2001 – Rs.46,000
The business was looked after by the management.
Remuneration from alternative employment if not engaged
in the business comes to Rs.6,000p.a.
Find out the amount of goodwill, if it is valued on the basis
of 3 years purchase at the average net profit for the last 4
years.
Avg Profit : Rs.40,000, Goodwill. Rs 1,20,000)
12. Problem No: 1. Mr. Amar has been doing business, intends to
sell his business on 1-12-2006.
From the following particulars ascertain the amount of
goodwill based on 3 years purchase of average profits of last 4
years. The profits during 4 years were as follows:
a) 2003-Rs.2,00,000 ; b) 2004—Rs. 1,40,000 ; c) 2005-
Rs.3,00,000 d) 2006- Rs.3,60,000
Additional Information
1.At the time of acquisition of business, the buyer was
employed as a manager of business on a salary of Rs.6,000 per
month.
2.The profits of 2006 include income from investment of
Rs.20,000.
3.The profits of 2003 were reduced by Rs.60,000 being loss on
speculation.
4.Similarly, in 2005 profits were reduced by Rs.1,00,000 due to
loss from betting. Ans: Adj. Avg. Profit : Rs. 2,38,000
(188000+168000+328000+268000/4) , Goodwill : Rs 7,14,000
13. Problem No: 2. Ramesh purchase business from Suresh from
1-4-2001.Profit earned by Suresh from the preceding years were
a) 1999-5,00,000 ; b) 2000-6,00,000 ; c) 2001-5,40,000
Additional Information
It was found that the profits for the year 1999 included a non-
recurring income of Rs. 20,000
Profits for the year 2001 was reduced by 30,000 due to an abnormal
loss due to small fire in the shop.
The properties of the business were not insured in the past. But it
was planned to insure the property in future at a premium of
Rs.5,000 p.a .
Ramesh at the time of purchase of business was employee as
manager of an identical business concern at a monthly salary of Rs.
10,000 per Month. He intends to replace the manager of business
who is drawing a salary of Rs.7,500 p.m .
The goodwill is estimated at 2 years of purchase of average profits.
Calculate the value of Goodwill.
Ans: Adj. Avg.Profit – Rs.5,15,00, Goodwill Rs. 10,30,000
14. Problem No: 3. (Complete At Home)
The following particulars are available in respect of the business
carried on by Mr. Madhu.
The profits are (in Rs.) a)1999 - 50,000 b) 2000 - 48,000 c) 2001 -
52,000.
Additional Information
Profits of 2000 is reduced by rs. 5,000 due to stock destroyed by
fire.
Profits of 1999 included a non-recurring income of Rs. 3,000
Profits of 2000 include Rs. 2,000 income on investment
The stock is not insured and it is thought prudent to insure the
stock in future. The insurance premium is estimated at Rs 500
p.a
Fair remuneration to the proprietor (not taken in the calculation
of profits) is Rs. 10,000 p.a .
You are required to compute the value of goodwill on the basis
of 2 years purchase of average profits of the last 3 years.
Ans: Adj.Avg.Profit – Rs.39,500, Goodwill Rs. 79,000
15. Weighted Average Profit Method
Step 1 – Calculate Adjusted Profit of Each Year
Step 2 – Multiply Profit of Each Year by weightage given for
years
Step 3 – Average of Profit = Total profit of years / Total weights
Goodwill = Weighted Average Profit x Number of Years of
Purchase
Problem No : 4, Complete at Home
16. Problem 5- (Weighted Average Profit Method)
ABC Ltd purchased the business of XYZ Ltd. The appropriate weights are :
Year Profit Weights
2001 40,500 1
2002 46,500 2
2003 60,000 3
2004 75,000 4
Additional Information
a). The company purchased new furniture on 30th June 2003 which
was entered in purchase day book. The value of furniture was
Rs.10,000 .
For the purpose of goodwill the error has to be rectified and
depreciation should be provided at 10% under written down value
method.
b). The opening stock of year 2003 was undervalued by Rs.2,500
c). Anticipated additional expenses in administration is Rs.5,00
Calculate goodwill on the basis of 3 years of purchase weighted
average for 4 years.
Ans : Adjusted & Weighted Avg: 35,500*1 + 45,000x2.5 + 62,000*3.8 +
69,050*4.2 = 6,73,110/11.5 = 58,531, Goodwill = 58531*3= 1,75,593
17. Problem 5- (Weighted Average Profit Method)
Particulars 2001 2002 2003 2004
Profit Given 40,500 47,500 60,000 75,000
Expenses will not inccur
in future (Furniture –
capital exp)
- - 10,000 -
Less : Expenses occur in
future -Depreciation
- - 500 950
Administration Expenses 5000 5000 5000 5000
Less: over valuation
opening Stock
- 2500
Add: Over Valuation of
Closing Stock
- 2500
35500 45000 62000 69050
18. Step 2 - Calculation of Weighted Profit
35,500 X 1 35,500
45,000 x X 2.5 11,250
62,000 x X 3.8 2,35,600
69,050 x X 4.2 2,90,010
--------------
Total Weighted Profit 6,73,110
--------------
Step 3 - Weighted Average Profit
Total Profit of All Year / Total Weightage
= 6,73,110 / 11.5
=58,531
Step 4 – Calculation of Goodwill
Goodwill = Weighted Average Profit x No. of Years of Purchase
= 58,531 X 3 Years
= 1,75,593
19. Note ;
1. Cost of Furniture is Incurred for business. But it is not revenue
expenditure in nature. So Deducted one should be added again.
2. Depreciation – it should be calculated to the year concerned and
next year that immediately following.
Period of the furniture usage : From July to December=6 months ;
= 10,000 x 10/100 x 6/12
= 500
3. In the following year (2004) = 9500 x 10/100
= 950
4. Adjustment of Stock (Material Consumed) = ( opening St +
Purchase - Cl.Stock )
Take Reverse Action
20. Problem No: 4. G Ltd proposed to purchase the business carried on by Mr. S . Goodwill for this purpose
is agreed to be valued at 3 years purchase of the weighted average profits of the past 4 years ,
The appropriate weights to be used are:
Year Profit Weightage Additional Information.
1. On 1st January ,2000 a major repair was made in respect of
the plant incurring Rs. 30,000 which amount was charged to
revenue .
1998 1,01,000 1
1999 1,24,000 2
2000 1,00,000 3
2001 1,50,000 4
2. The said sum is agreed to be capitalized for goodwill calculation subject to adjustment of
depreciation of 10% p.a on reducing balance method.
3. The closing stock for the year 1999 was over valued by Rs.12,000
4. To cover management cost an annual charge of Rs.24,000 should be made for the purpose of
goodwill valuation. Compute the value of goodwill
Ans: Rs.77,000*1 + 88,000*2 + 1,15,000*3 + 1,23,500*4 = 10,91,200 / 10 = 1,09,120 Goodwill=3,27,360
21. Super Profit Method
A)Super Profit Under Simple or Weighted Average Profit Method
Super Profit Under Simple Average Method
Step 1: Calculation of Adj.Average Profit ( Total Profit / Total no of
years)
Step 2: Normal Profit = Avg.Capital Employed in Business x
Normal Rate of Return ( Avg.Capital Employed =Closing Capital –
½ of Current year Profit)
Step 3 : Calculation of Super Profit = Average Profit – Normal
Profit
Step 4 : Calculation of Goodwill = Super Profit X No. of years of
Purchase.
22. 2.1 Super Profit Under Simple Average Method
Problem No: 6.
From the following particulars ,compute the value of Goodwilll on the
basis of 3 years purchase of super profit taking advantage of last 4
years.
Fixed assets-Rs.8,00,000 Current assets- Rs.80,000
Current liabilities- Rs.1,60,000 Normal rate of return-15% Managerial
remuneration if employed elsewhere-Rs.10,000 P.a
Profits for the last 4 years were Rs. 1,20,000 , Rs. 1,40,000, Rs.
1,30,000 and Rs. 1,50,000 respectively.
Ans : - Average Profit = 1,35,000 – 10,000 = 1,25,000
Average Capital Employed = 8,80,000 – 1,60,000 – 70,000 (1,50,000 –
10,000)
Normal Profit = Capital Employed * NRR = 97,500
Super Profit = Adj.Avg.Profit – Normal Profit = 1,25,000 -, 97,500=27,500
Value of Goodwill = Super Profit x No. of Years of Purchase =82,500
23. 2.1 Super Profit Under Weighted Average Method
Problem No: 7 .
From the following balance sheet of S Ltd as on 31-03-2010, calculate
the goodwill at 3 years purchase of super profits.
Liabilities Assets
Share capital 30,00,000 Fixed assets 20,00,000
Reserves & surplus 7,50,000 Current Assets 25,00,000
Creditors 12,50,000 Investment 5,00,000
The investments are 8% Government Bonds.
The net profit after taxation for the past 4 years were Rs.7,85,00, Rs.
8,45,000, Rs. 8,50,000, Rs. 8,60,000 respectively. Normal rate of return
on the average capital employed is 20%
Ans : Profit of 4 years / Taken Weights = Weighted Average Profit = 84,65,000/ 10 =,8,46,500
Adjusted Weighted Average Profit = Avg Profit – Interest on Investment = 8,46,500-40,000 =
8,06,500, Capital Employed = Fixed + Current - Creditors
:Average Capital employed = Closing capital Employed – ½ of Current year Profit
32,50,000 -, 4,10,000
Normal Profit = 28,40,000 * 20% = 5,68,000
Super Profit = Average Profit – Normal Profit = 2,38,500
Goodwill = Super Profit X No of Years of Purchase = 7,15,500
24. 2.1 Super Profit Under Weighted Average Method
Problem No: 7 .
From the following balance sheet of S Ltd as on 31-03-2010, calculate
the goodwill at 3 years purchase of super profits.
Liabilities Assets
Share capital 30,00,000 Fixed assets 20,00,000
Reserves & surplus 7,50,000 Current Assets 25,00,000
Creditors 12,50,000 Investment 5,00,000
The investments are 8% Government Bonds.
The net profit after taxation for the past 4 years were Rs.7,85,00, Rs.
8,45,000, Rs. 8,50,000, Rs. 8,60,000 respectively. Normal rate of return
on the average capital employed is 20%
Ans : Profit of 4 years / Taken Weights = Weighted Average Profit = 84,65,000/ 10 =,8,46,500
Adjusted Weighted Average Profit = Avg Profit – Interest on Investment = 8,46,500-40,000 =
8,06,500, Capital Employed = Fixed + Current - Creditors
:Average Capital employed = Closing capital Employed – ½ of Current year Profit
32,50,000 -, 4,10,000
Normal Profit = 28,40,000 * 20% = 5,68,000
Super Profit = Average Profit – Normal Profit = 2,38,500
Goodwill = Super Profit X No of Years of Purchase = 7,15,500