PRAMOD KUMAR CLASSES FOR ACCOUNTS 9818386161

Goodwill
1. Yash and Karan were partners in an interior designer firm. Their fixed capitals were Rs.6,00,000 and
Rs.4,00,000 respectively. There were credit balances in their current accounts of Rs.4,00,000 and Rs.5,00,000
respectively. The firm had a balance of Rs.1,00,000 in General Reserve. The firm did not have any liability.
They admitted Radhika into partnership for 1/4th share in the profits of the firm. The average profits of the firm
for the last five years were Rs.5,00,000. Calculate the value of goodwill of the firm by capitalization of average
profits method. The normal rate of return in the business is 10%.

2. On 1st April, 2022, the capital of the firm of Ashu and Madhav is Rs.1,50,000. The normal rate of return on
capital employed is 10%. Average profits of the firm are Rs.23,500. Calculate goodwill of the firm based on
three years purchase of super profits.

3. A business has earned average profits of Rs.100000 during the last few years and the normal rate of return in
similar business is 10%. Find out the value of Goodwill by (i) Capitalisation of super profit method
The assets of the business were Rs.1000000 and its external liabilities Rs.180000.

4. A partnership firm earned net profits during the last three years as follows:
Years Net Profit
2007-2008 Rs.190000
2008-2009 Rs.220000
2009-2010 Rs.250000
The capital employed in the firm throughout the above mentioned period has been Rs.400000. Having regard to
the risk involved, 15% is considered to be a fair return on the capital. The remuneration of all the partners
during this period is estimated to be Rs.100000 per annum.
Calculate the valve of goodwill on the basis of (i) two year’s purchases of Super profits earned on average basis
during the above mentioned three years and (ii) by capitalization method.

5. The average profit earned by a firm is Rs.75000 which includes under valuation of stock of Rs.5000 on an
average basis. The capital invested in the business is Rs.700000 and the normal rate of return is 7%. Calculate
Goodwill of the firm on the basis of 5 times the super profit.

6. The average profit earned by a firm is Rs.80000 which includes under valuation of stock of Rs.8000 on an
average basis. The capital invested in the business is Rs.800000 and the normal rate of return is 8%. Calculate
Goodwill of the firm on the basis of 7 times the super profit.

7. On 1st April, 2014 a firm had assets of Rs.100000 excluding stock of Rs.20000. Partners’ capital accounts
showed a balance of Rs.60000. the current liabilities were Rs.10000 and the balance constituted the reserve. If
the normal rate of return is 8%, the ‘Goodwill’ of the firm is valued at Rs.60000 at four years of purchase of
super profit, find the average profit of the firm

8. The average profit earned by a firm is Rs.100000 which includes under valuation of stock of Rs.40000 on an
average basis. The capital invested in the business is Rs.630000 and the normal rate of return is 5%. Calculate
Goodwill of the firm on the basis of 5 times the super profit.

9. Goodwill is to be valued at three years' purchase of four years' average profit. Profits for last four years
ending on 31st March of the firm were:
2016 − ₹ 12,000; 2017 − ₹ 18,000; 2018 − ₹ 16,000; 2019 − ₹ 14,000.
Calculate amount of Goodwill.

CENTRES-(1) Road No.1 Near Kanak farms, Govindpuram, Gzb. (2) SH-296 1st floor, Shastri Nagar, Opp. Uttam
School Gzb.
(3) C-003 Ajnara Integrity, Rajnagar Extension, Gzb.
 PRAMOD KUMAR CLASSES FOR ACCOUNTS 9818386161
10. Profits for the five years ending on 31st March, are as follows:
Year 2015 − ₹ 4,00,000; Year 2016 − ₹ 3,98,000; Year 2017 − ₹ 4,50,000; Year 2018 − ₹ 4,45,000 and Year
2019 − ₹ 5,00,000.
Calculate goodwill of the firm on the basis of 4 years' purchase of 5 years' average profit.

11. Calculate value of goodwill on the basis of three years' purchase of average profit of the preceding five years
which were as follows:
Year 2018-19 2017-18 2016-17 2015-16 2014-15
Profits (₹) 8,00,000 15,00,000 18,00,000 4,00,000 (Loss) 13,00,000

12. Calculate the value of firm's goodwill on the basis of one and half years' purchase of the average profit of
the last three years. The profit for first year was ₹ 1,00,000, profit for the second year was twice the profit of the
first year and for the third year profit was one and half times of the profit of the second year.

13. Purav and Purvi are partners in a firm sharing profits and losses in the ratio of 2 : 1. They decide to take Parv
into partnership for 1/4th share on 1st April, 2019. For this purpose, goodwill is to be valued at four times the
average annual profit of the previous four or five years, whichever is higher. The agreed profits for goodwill
purpose of the past five years are:
Year 2014-15 2015-16 2016-17 2017-18 2018-19
Profits (₹) 14,000 15,500 10,000 16,000 15,000
Calculate the value of goodwill.

14. Annu, Baby and Chetan are partners in a firm sharing profits and losses equally. They decide to take Deep
into partnership from 1st April, 2019 for 1/5th share in the future profits. For this purpose, goodwill is to be
valued at 100% of the average annual profits of the previous three or four years, whichever is higher. The
annual profits for the purpose of goodwill for the past four years were:
Year Ended Profit (₹)
31st March, 2019 2,88,000;
31st March, 2018 1,81,800;
31st March, 2017 1,87,200;
31st March, 2016 2,53,200.
Calculate the value of goodwill.

15. Divya purchased Jyoti's business with effect from 1st April, 2019. Profits shown by Jyoti's business for the
last three financial years were:
2016-17 ₹ 1,00,000 (including an abnormal gain of ₹ 12,500).
2017-18 ₹ 1,25,000 (after charging an abnormal loss of ₹ 25,000).
2018-19 ₹ 1,12,500 (excluding ₹ 12,500 as insurance premium on firm's property- now to be insured).
Calculate the value of firm's goodwill on the basis of two year's purchase of the average profit of the last three
years.

16. A business earned an average profit of ₹4,00,000 during the last few years. The normal rate of profit in the
similar type of business is 10%. The value of assets and liabilities of the business were ₹20,00,000 and
₹5,00,000 respectively. Calculate the value of goodwill of the firm by Super Profits Method if it is valued at 2
years purchase of super profit.

CENTRES-(1) Road No.1 Near Kanak farms, Govindpuram, Gzb. (2) SH-296 1st floor, Shastri Nagar, Opp. Uttam
School Gzb.
(3) C-003 Ajnara Integrity, Rajnagar Extension, Gzb.
 PRAMOD KUMAR CLASSES FOR ACCOUNTS 9818386161
17. Sumit purchased Amit's business on 1st April, 2019. Goodwill was decided to be valued at two years'
purchase of average normal profit of last four years. The profits for the past four years were:
31st March, 31st March,
Year Ended 31st March, 2016 31st March, 2017
2018 2019
Profits (₹) 80,000 1,45,000 1,60,000 2,00,000
Books of Account revealed that:
(i) Abnormal loss of ₹ 20,000 was debited to Profit and Loss Account for the year ended 31st March, 2016.
(ii) A fixed asset was sold in the year ended 31st March, 2017 and gain (profit) of ₹ 25,000 was credited to
Profit and Loss Account.
(iii) In the year ended 31st March, 2018 assets of the firm were not insured due to oversight. Insurance premium
not paid was Rs. 15,000.
Calculate the value of goodwill.

CENTRES-(1) Road No.1 Near Kanak farms, Govindpuram, Gzb. (2) SH-296 1st floor, Shastri Nagar, Opp. Uttam
School Gzb.
(3) C-003 Ajnara Integrity, Rajnagar Extension, Gzb.