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Goodwill Final

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Sriram Swaminathan
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29 views3 pages

Goodwill Final

Uploaded by

Sriram Swaminathan
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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GOODWILL

Q1. Anand and Roop are partners in a firm sharing profits and losses equally. On 1
April 2024 they decided to change their profit-sharing ratio to 2:1. For this purpose,
goodwill of the firm is valued at 3 years purchase of the average profits of the last 4
years.
The Profits for the year ended 31st March are as follows;
2020-21: ₹ 1,00,000 Profit
2021-22: ₹ 1,50,000 Profit
2022-23: ₹ 80,000 Profit
2023-24: ₹ 66,000 Profit
On 31st October 2022 a major upgradation work was done to Plant and Machinery
unit for ₹ 60,000 which was charged to profit and loss. It is agreed to be capitalized
for valuation of goodwill subject to depreciation at 20% p.a. on WDV basis.

1. The Adjusted Profit for the year ended 31st March 2023 is:
a. ₹ 1,45,000
b. ₹ 1,20,000
c. ₹ 1,16,000
d. ₹ 1,35,000
Answer: D
Solution:
Profits + Capital expenditure charged to revenue – Depreciation on capital
expenditure
= 80,000+60,000-5,000 = ₹ 1,35,000
Depreciation = 60,000 x 20/100 x 5/12 = 5,000 (5 months from Nov-March)

2. The Adjusted Profit for the year ended 31st March 2024 is:
a. ₹ 40,000
b. ₹ 75,000
c. ₹ 69,000
d. ₹ 64,000
Answer: B
Solution:
Profits – Depreciation on capital expenditure
= 86,000 - 11,000 = ₹ 75,000
Depreciation = 55,000 x 20/100 = 11,000
55,000 being WDV = 60,000 - 5,000

3. Average profits of the firm will be


a. ₹ 1,20,000
b. ₹ 90,000
c. ₹ 1,15,000
d. ₹ 1,00,000
Answer: C
Solution:
Average profits = Total profits/ Number of years
=1,00,000 + 1,50,000 + 1,35,000 + 75,000 / 4 =
= 4,60,000/4 = ₹ 1,15,000.

4. Goodwill calculated on 3 years purchase of average profit is


a. ₹ 3,70,300
b. ₹ 1,15,000
c. ₹ 3,45,000
d. ₹ 4,20,000
Answer: C
Solution:
GOODWILL = Average profits x Number of Years purchase
= 1,15,000 x 3 = ₹ 3,45,000.

Q2. Purva and Karun are partners sharing profits and losses in the ratio of 3:2. On 1 st
April 2024 they decided to share profits and losses equally. The Profits for the year
ended 31st March are as follows;
2020-21: 75,000 Loss
2021-22: 1,25,000 Profit
2022-23: 1,60,000 Profit
2023-24: 1,86,000 Profit
On 1st April 2023, the firm incurred ₹ 40,000 for maintenance by way repairs and
maintenance on office premises which was debited to building and depreciation
charged at 10% per annum. Assets and Liabilities of the firm are ₹ 14,00,000 and
₹ 8,00,000 respectively. Normal rate of return for similar business is 10%.
Based on the above information you are required to answer the following questions.

1. The Adjusted Profit for the year ended 31st March 2024 is:
a. ₹ 1,50,000
b. ₹ 2,06,000
c. ₹ 1,46,000
d. ₹ 2,22,000
Answer: A
Solution:
Profits – Revenue expenditure charged as Capital expenditure + Depreciation
disallowed on capital expenditure
= 1,86,000 - 40,000 + 4,000 = ₹ 1,50,000
Depreciation = 40,000 x 10/100 = 4,000

2. Goodwill of the firm on the basis of 5 year’s Super Profit.


a. ₹ 60,000
b. ₹1,50,000
c. ₹ 1,63,500
d. ₹ 2,05,000
Answer: B
Solution:
Average profits= Total Profits / Number of years
Average profits = (75,000) + 1,25,000 + 1,60,000 + 1,50,000 / 4
= 3,60,000 / 4 = ₹ 90,000
Normal Profit = Capital Employed x (Normal Rate of Return/100)
Capital Employed= Assets – Liabilities
=14,00,000-8,00,000=6,00,000
Normal Profit =6,00,000X 10/100=60,000
Super Profit = Average Profit – Normal Profit
= 90,000-60,000
= 30,000
Goodwill = Super Profit x No of years purchase
30,000 x 5=1,50,000

3. Goodwill of the firm on the basis of capitalization of Super Profit.


a. 3,12,500
b. 2,95,000
c. 3,00,000
d. 3,50,000
Answer C
Solution:
Goodwill By Capitalisation of Super Profits Method
= Super Profits x 100 / Normal rate of return
Super Profit = 30,000
Goodwill = 30,000 x 100 /10 = ₹ 3,00,000

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