A business has earned average profits of Rs. 1,00,000 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 and (ii) Super profit method if the goodwill is valued at 3 years purchase of super profit. The assets of the business were Rs. 10,00,000 and its external liabilities Rs. 1,80,000.
(i) Calculation of good will by capitalisation of super profit method:
* Average profit earned by the firm = Rs 1,00,000
|
* Capital employed = Asset – Liabilities |
= 10,00,000 – 1,80,000= 8,20,000
|
* Normal profit = capital employed* normal rate of return |
= 8,20,000* 10% = 82,000
|
* Super Profit = Average profit earned – Normal profit |
= 1,00,000- 82,000 = 18000
|
* Good will = Capitalisation of super profit = Super profit * 100/ Normal rate of return |
=18000*100/10 =Rs 1,80,000/-
(ii) Calculation of good will by super profit method:
Average profit earned by the firm = 1,00,000
Normal profit earned = capital employed * normal rate of return
Capital employed = asset – liabilities = 8,20,000
Normal profit = 820000* 10/100 =82,000
Super profit = average profit – normal profit
= 1,00,000 – 82,000 = 18,000
Goodwill valued at 3 years purchase of super profit = 18000* 3 = Rs 54000/-
On 31-3-2010 the Balance Sheet of W and R who shared profits in 3:2 ratio was as follows:
|
Liabilities |
Amount( Rs) |
Assets |
Amount ( Rs) |
|
Creditors Profit and Loss Account Capital account W 40,000 R 30,000
|
20,000 15,000
70,000 |
Cash Sundry Debtors 20,000 Less:Provision 700
Stock Plant and Machinery Patent |
5,000
35,000 20,700 |
|
|
1,05,000 |
|
1,05,000 |
On this date B was admitted as a partner on the following conditions:
(a) 'B' will get 4/15th share of profits.
(b) 'B' had to bring Rs. 30,000 as his capital to which amount other Partners capitals shall have to be adjusted.
(c) He would pay cash for his share of goodwill which would be based on 2½ years purchase of average profits of past 4 years.
(d) The assets would be revalued as under:
Sundry debtors at book value less 5% provision for bad debts. Stock at Rs. 20,000, Plant and Machinery at Rs. 40,000.
(e) The profits of the firm for the years 2007, 2008 and 2009 were Rs. 20,000; Rs. 14,000 and Rs. 17,000 respectively.
Prepare Revaluation Account, Partner's Capital Accounts and the Balance Sheet of the new firm.
A and B are partners in a firm sharing profits and losses in the ratio of 3:2. The following was the Balance Sheet of the firm as on 31-3-2010.
|
Liabilities |
Amount Rs |
Assets |
Amount Rs |
|
Capital A
B |
60,000
20,000 |
Sundry Assets |
80,000 |
|
|
80,000 |
|
80,000 |
The profits Rs. 30,000 for the year ended 31-3-2010 were divided between the partners without allowing interest on capital @ 12% p.a. and salary to A @ Rs. 1,000 per month. During the year A withdrew Rs. 10,000 and B Rs. 20,000. Pass the necessary adjustment journal entry and show your working clearly.
State the two main rights that a newly admitted partner acquires in the firm.
How does the market situation affect the value of goodwill of a firm?
