Ch 2: Goodwill: Nature and Valuation

2011

Q1 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:
a) Capitalization of Super Profit Method; and
b) Super Profit Method if the goodwill is valued at 3 years purchased of super profit.
Assets of the business were Rs 10,00,000 and its external liabilities Rs 1,80,000.

2013

Q2 A business has earned average profit of Rs 4,00,000 during the last few years and the normal rate
of return in similar business is 10%. Find value of goodwill by:
a) Capitalization of Super Profit Method; and
b) Super Profit Method if the goodwill is valued at 3 years purchased of super profit.
Assets of the business were Rs 40,00,000 and its external liabilities Rs 7,20,000.

2014

Q3 A business earned an average profit of Rs 8,00,000 during the last few years. The normal rate of
profit in the similar type of business is 10%. The total value of assets and liabilities of the business
were Rs 22,00,000 and Rs 5,60,000 respectively. Calculate the value of goodwill of the firm by
super profit method if it is valued at 2.5 years’ purchase of super profit.

2015

Q4 A firm earned profits of Rs 80,000; Rs 1,00,000; Rs 1,20,000 and Rs 1,80,000 during 2010-11, 2011-
12, 2012-13 and 2013-14 respectively. The firm has capital investment of Rs 5,00,000. A fair rate of
return on investment is 15% p.a. Calculate goodwill of the firm based on three years’ purchase of
average super profits of last four years.

Q5 Average profit earned by a firm is Rs 1,00,000 which includes undervaluation of stock of Rs 40,000
on an average basis. The capital invested in the business is Rs 6,30,000 and the normal rate of
return is 5%. Calculate goodwill of the firm on the basis of 5 times the super profit.

Q6 The average profit earned by a firm is Rs 75,000 which includes undervaluation of stock of Rs 5,000
on an average basis. The capital invested in the business is Rs 7,00,000 and the normal rate of
return is 7%. Calculate goodwill of the firm on the basis of 5 times the super profit.

Q7 On 1st April, 2014, a firm had assets of Rs 1,00,000 excluding stock of Rs 20,000. Partners’ Capital
Accounts showed a balance of Rs 60,000. The current liabilities were Rs 10,000 and the balance
constituted the reserve. If the normal rate of return is 8%, the ‘Goodwill’ of the firm is valued at Rs
60,000 at four years of purchase of super profit, find average profit of the firm.

2017

Q8 Total capital of the firm of Sakshi, Mehak and Megha is Rs 1,00,000 and the market rate of interest
is 15%. The net profits for the last 3 years were Rs 30,000; Rs 36,000 and Rs 42,000. Goodwill is to
be valued at 2 years’ purchase of the last 3 years’ super profit. Calculate the goodwill of the firm.

2018
Q9 Amit and Kartik are partners sharing profits and losses equally. They decided to admit Saurabh for
an equal share in the profits. For this purpose, the goodwill of the firm was to be valued at four
years’ purchase of super profits.
The Balance Sheet of the firm on Saurabh’s admission was as follows:
Liabilities Amount (Rs) Assets Amount (Rs)
Capitals: Machinery 75,000
Amit 90,000 Furniture 15,000
Kartik 50,000 Stock 30,000
Reserve 20,000 Sundry Debtors 20,000
Loan 25,000 Cash 50,000
Sundry Creditors 5,000
1,90,000 1,90,000
The normal rate of return is 12% per annum. Average profits of the firm for the last four years was
Rs 30,000. Calculate Saurabh’s share of goodwill.

Q10 On 1st April, 2018, a firm has assets of Rs 1,00,000 excluding stock of Rs 20,000. The current
liabilities were Rs 10,000 and the balance constituted Partners’ Capital Accounts. If the normal rate
of return is 8%, the Goodwill of the firm is valued of Rs 60,000 at four year’s purchase of super
profit, find the actual profits of the firm.

2019

Q11 Calculate goodwill of the firm on the basis of 3 year’s purchase of the average profits of the last
five years. The profits of the last five years were:
Year Amount (Rs)
2013-14 4,00,000
2014-15 5,00,000
2015-16 (60,000)
2016-17 1,50,000
2017-18 2,50,000
Additional Information:
a) On 31st January, 2016, a fire broke out which resulted into a loss of goods of Rs 3,00,000. A
claim of Rs 70,000 was received from the insurance company.
b) During the year ended 31st March, 2018 the firm received an unexpected tax refund of Rs
80,000.

Q12 Average profits of a firm during the last few years are Rs 80,000 and the normal rate of return in a
similar business is 10%. If the goodwill of the firm is Rs 1,00,000 at 4 year’s purchase of super
profit, find the capital employed by the firm.

Q13 The capital of the firm of Anuj and Benu is Rs 10,00,000 and the market rate of interest is 15%.
Annual salary to the partners is Rs 60,000 each. The profit for the last three years were Rs
2,80,000; Rs 3,80,000 and Rs 4,20,000. Goodwill of the firm is to be valued on the basis of two
years purchase of last three years average super profits.
Calculate the goodwill of the firm.

Q14 A firm earned average profit of Rs 3,00,000 during the last few years. The normal rate of return of
the industry is 15%. The assets of the business were Rs 17,00,000 and its liabilities were Rs
2,00,000.
Calculate the goodwill of the firm by capitalization of average profit.
Q15 The goodwill of a firm was to be valued at two years’ purchase of the average profit of the last
three years. The profits were as under:
2014-15: Rs 20,000 (including an abnormal gain of Rs 5,000)
2015-16: Rs 40,000 (after charging an abnormal loss of Rs 10,000)
2016-17: Rs 40,000.
Calculate the amount of goodwill.

2020

Q16 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%.

Q17 A and B were partners in a firm with capitals of Rs 3,00,000 and Rs 2,00,000 respectively. The
normal rate of return was 20% and the capitalized value of average profits was Rs 7,50,000.
Calculate goodwill of the firm by capitalization of average profit method.

Q18 Average profit of a firm during the last few years is Rs 1,50,000. In similar business, the normal rate
of return is 10% of the capital employed. Calculate the value of goodwill by capitalization of super
profit method if super profits of the firm are Rs 50,000.