OMTEX CLASSES

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GOODWILL QUESTIONS AND THEIR SOLUTIONS

HSC MAHARASHTRA STATE BOARD
1. The profits of the firm for the last five years are 2002 Rs. 20,000; 2003 Rs.
16,000; 2004 Rs. 24,000; 2005 Rs. 8000; 2006 Rs. 12,000. Calculate the goodwill of
the firm. [Ans. Rs. 16,000]

SOLUTION:
M/S _________________________________
VALUATION OF GOODWILL
AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT = TOTAL PROFIT-TOTAL LOSSTOTAL NUMBER OF

YEARS
= 20000+16000+24000+8000+120005
=800005
=Rs. 16000

GOODWILL = 16000 ×1

GOODWILL = 16000
2. Mona, Reena and Sona have been carrying on a partnership business and good
will of their firm is to be valued at three years purchase of the average profit for the
last five years. The profit and losses for the last five years have been. 1st Year Rs.
16,000, 2nd Year, 15,000, 3rd Year, 8,000(Loss), 4th Year, 7,000, 5th Year, 10,000. [Ans.
Rs. 24,000]

SOLUTION:
M/S MONA, REENA & SONA CO
VALUATION OF GOODWILL
AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT = TOTAL PROFIT-TOTAL LOSSTOTAL NUMBER OF

YEARS
= 16000+15000-8000+7000+10005
=400005
 =Rs. 8000

GOODWILL = 8000 ×3

GOODWILL = Rs. 24000

3. Calculate the good will from the following information goodwill is valued at
three years purchase of average profit of the last six years. Profit and losses of the
business in the last six years are as follows, [Ans. Rs. 95,000]
1st year, Rs, 40,000(Profit)
2 Year,
nd
Rs, 60,000(Profit)
3 Year,
rd
Rs, 10,000(Loss)
4 Year,
th
Rs, 50,000(Profit)
5 Year,
th
Rs, 30,000 (Loss)
6 Year,
th
Rs, 80,000(Profit)

SOLUTION:
M/S _________________________________
VALUATION OF GOODWILL
AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT = TOTAL PROFIT-TOTAL LOSSTOTAL NUMBER OF

YEARS
= 40000+60000-1000+50000-30000+800006
=1900006 =Rs. 950003

GOOD WILL =950003 ×3

GOODWILL = Rs. 95000

4. Calculate the value of goodwill according to average profit method. Goodwill is

valued at three years purchase of last four year average profit. The profits and
losses for the last four years are. [Ans. Rs. 27,000]
1st Year Rs, 10,000(Profit)
2 Year Rs,
nd
12,000(Profit)
3 Year Rs,
rd
4,000(Loss)
4 Year Rs,
th
18,000(Profit)

SOLUTION:
 M/S ___________________________________
VALUATION OF GOODWILL
AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT = TOTAL PROFIT-TOTAL LOSSTOTAL NUMBER OF

YEARS
= 10000+12000-4000+180004
=360004
=Rs. 9000

GOODWILL = 9000 ×3

GOODWILL = Rs. 27000

5. The profit of a firm for the four years from 1991 to 1994 where_ [Ans. Rs. 1,
02,000]
1991 Rs, 40,000
1992 Rs, 45,000
1993 Rs, 55,000
1994 Rs, 53,000
Calculate the goodwill of the firm at 2yrs. Purchase of the average profit for the
last three years.

SOLUTION:
M/S ______________________________________
VALUATION OF GOODWILL
AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT = TOTAL PROFIT-TOTAL LOSSTOTAL NUMBER OF

YEARS
= 45000+55000+530003
=1530003
=Rs. 51000

GOODWILL = 51000 ×2

GOODWILL =Rs. 1,02,000

6. Mr. X a businessperson has earned the following profits in the last five years.
1995 1, 05,800
1994 1, 02,600
 1993 98,400
1992 96,800
1991 95,500
Value goodwill of Mr. X on the basis of three years purchase of average of the past
five years. [Ans. Rs. 2,99,460]

SOLUTION:
M/S X Co.
VALUATION OF GOODWILL
AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT = TOTAL PROFIT-TOTAL LOSSTOTAL NUMBER OF

YEARS
= 105800+102600+98400+96800+955005
=4991005
=99820

GOODWILL = 99820 ×3

GOODWILL = Rs. 299460

7. Good will is valued at three years purchase of last five years average profit. The
profits for the last five years are. [Ans. 0]
1 Year
st
4,800(p)
2 Year
nd
7,200(L)
3 Year
rd
10,000(L)
4 Year
th
3,000(P)
5 Year
th
5,000(L)
Note: - Since the company’s average profit is negative. Therefore the firm’s goodwill
is zero.
SOLUTION:
M/S ______________________________________
VALUATION OF GOODWILL
AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT = TOTAL PROFIT-TOTAL LOSSTOTAL NUMBER OF

YEARS
= 4800-7200-10000+3000-50005
=-144005
=-2880
GOODWILL = 0
GOODWILL = 0

Note: Since the company’s Average profit is negative therefore, the firms goodwill is
zero.
8. Compute the goodwill the following case good will is valued at three years purchase of
average profit of five years. The Profit of the five years were_ [Ans. Rs. 26,400]
1
st
Year 5,800
2nd
Year 7,400
3rd
Year 20,000
4 th
Year 3,500
5th
Year 7,300

SOLUTION:
M/S ______________________________________
VALUATION OF GOODWILL
AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PRFIT = TOTAL PROFIT-TOTAL LOSSTOTAL NUMBER OF

YEARS
= 5800+7400+20000+3500+73005
=440005
=8800
GOODWILL = 8800 ×3
GOODWILL = 26400

9. A firm with an average capital employed of R s. 1, 60,000 is expected to earn Rs,

40,000 per annum in future. Calculate goodwill at three times the super profit taking the
normal rate of return as 15%. [Ans. Rs. 48,000]

M/S ______________________________________
VALUATION OF GOODWILL
SUPER PROFIT METHOD

GOODWILL = (SUPER PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : - SUPER PROFIT = AVERAGE PROFIT – NORMAL PROFIT -
REMUNERATION
WHERE : AVERAGE PRFIT = TOTAL PROFIT-TOTAL LOSSTOTAL NUMBER OF
YEARS
= Rs. 40000
WHERE: NORMAL PROFIT = CAPITAL EMPLOYED ×N.R.R.
NORMAL PROFIT = 160000 × 15 %
 NORMAL PROFIT = Rs. 24000
WHERE: REMUNERATION = Rs. NIL

SUPER PROFIT = 40000-24000-NIL

GOODWILL = 16000 ×3
GOODWILL = Rs. 48000

10. Capital employed on 31 December, 1990 was Rs, 1, 00,000/-. The Profits earned
st

by the business for the last 5 years where. [Ans. Rs. 87,000]
1986 30,000
1987 40,000
1988 50,000
1989 40,000
1990 60,000
Normal rate of return is 15%. Good will is valued at 3 years purchase of the super profits of the
business. Find out the value of goodwill.
M/S ______________________________________
VALUATION OF GOODWILL
SUPER PROFIT METHOD
GOODWILL = (SUPER PROFIT) × (NUMBER OF YEARS PURCHASE)
WHERE : - SUPER PROFIT = AVERAGE PROFIT – NORMAL PROFIT -
REMUNERATION
WHERE : AVERAGE PRFIT = TOTAL PROFIT-TOTAL LOSSTOTAL NUMBER OF
YEARS
= 30000+40000+50000+40000+600005
= 2200005
= Rs. 44000
WHERE: NORMAL PROFIT = CAPITAL EMPLOYED ×N.R.R.
NORMAL PROFIT = 100000 × 15 %
NORMAL PROFIT = Rs. 15000
WHERE: REMUNERATION = Rs. NIL
SUPER PROFIT = 44000-15000-NIL
GOODWILL = 29000 ×3
GOODWILL = Rs. 87000

11. The books of a business showed that the capital employed on 31 December, 1992
st

was Rs.1, 00,000/-. Profits for the last five years are_1988, 1989, 1990, 1991 & 1992 were
Rs, 60,000, Rs, 55,000, Rs, 75,000, Rs, 85,000 & Rs, 65,000 respectively. Goodwill is
valued at 2 years purchase of the Super profit of the business. NRR is 10%. [Ans. Rs. 1,
16,000]

M/S ______________________________________
VALUATION OF GOODWILL
SUPER PROFIT METHOD
 GOODWILL = (SUPER PROFIT) × (NUMBER OF YEARS PURCHASE)
WHERE : - SUPER PROFIT = AVERAGE PROFIT – NORMAL PROFIT -
REMUNERATION
WHERE : AVERAGE PRFIT = TOTAL PROFIT-TOTAL LOSSTOTAL NUMBER OF
YEARS
= 60000+55000+75000+85000+650005
= 3400005
= Rs. 68000
WHERE: NORMAL PROFIT = CAPITAL EMPLOYED ×N.R.R.
NORMAL PROFIT = 100000 × 10 %
NORMAL PROFIT = Rs. 10000
WHERE: REMUNERATION = Rs. NIL
SUPER PROFIT = 68000-10000-NIL
GOODWILL = 58000 ×2
GOODWILL = Rs. 116000

12. M/s XYZ partnership firm earned net profit during the last four years were Rs,
7,000. Rs, 13,000. Rs, 12,000 and Rs, 8,000. The capital investment made in the firm was
Rs, 50,000. N.R.R on capital is 15%. The remuneration of the partners during the period is
Rs, 500 p.a. Good will is valued at 2 Yrs purchase of Average super profit of the above
mentioned years. [Ans. Rs. 4,000]

M/S XYZ CO
VALUATION OF GOODWILL
SUPER PROFIT METHOD
GOODWILL = (SUPER PROFIT) × (NUMBER OF YEARS PURCHASE)
WHERE : - SUPER PROFIT = AVERAGE PROFIT – NORMAL PROFIT -
REMUNERATION
WHERE : AVERAGE PRFIT = TOTAL PROFIT-TOTAL LOSSTOTAL NUMBER OF
YEARS
= 7000+13000+12000+80004
= 400004
= Rs. 10000
WHERE: NORMAL PROFIT = CAPITAL EMPLOYED ×N.R.R.
NORMAL PROFIT = 15000 × 15 %
NORMAL PROFIT = Rs. 7500
WHERE: REMUNERATION = Rs. 500
SUPER PROFIT = 10000-7500-500
GOODWILL = 2000 ×2
GOODWILL = Rs. 4000

13. M/s Vijay trading company earned net profit during the last four years was
follows.
1 Year Rs, 57,000
st
 2 Year Rs, 44,000
nd

3 Year Rs, 61,000

rd

4 Year Rs, 58,000

th

The capital investment made by the company is Rs, 1, 50,000. Normal Rate of return on
capital is 20%. The remuneration of the partners during this period is Rs, 500 p.m. Good will
is valued at 2years purchase of Average Super profit of above mentioned period.

M/S VIJAY CO
VALUATION OF GOODWILL
SUPER PROFIT METHOD
GOODWILL = (SUPER PROFIT) × (NUMBER OF YEARS PURCHASE)
WHERE : - SUPER PROFIT = AVERAGE PROFIT – NORMAL PROFIT -
REMUNERATION
WHERE : AVERAGE PRFIT = TOTAL PROFIT-TOTAL LOSSTOTAL NUMBER OF
YEARS
= 57000+44000+61000+580004
= 2200004
= Rs. 55000
WHERE: NORMAL PROFIT = CAPITAL EMPLOYED ×N.R.R.
NORMAL PROFIT = 150000 × 20 %
NORMAL PROFIT = Rs. 30000
WHERE: REMUNERATION = Rs. 500 ×12=6000
SUPER PROFIT = 55000-30000-6000
GOODWILL = 19000 ×2
GOODWILL = Rs. 38000