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 =
=
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. 1^{st} Year Rs. 16,000, 2^{nd} Year, 15,000, 3^{rd} Year, 8,000(Loss), 4^{th} Year, 7,000, 5^{th} 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 =
=
GOODWILL = 8000
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]
1^{st} year,

Rs, 40,000(Profit)

2^{nd} Year,

Rs, 60,000(Profit)

3^{rd} Year,

Rs, 10,000(Loss)

4^{th} Year,

Rs, 50,000(Profit)

5^{th} Year,

Rs, 30,000 (Loss)

6^{th} Year,

Rs, 80,000(Profit)

SOLUTION:
M/S _________________________________
VALUATION OF GOODWILL
AVERAGE PROFIT METHOD
GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)
WHERE : AVERAGE PRFIT =
=
GOOD WILL
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]
1^{st} Year Rs,

10,000(Profit)

2^{nd} Year Rs,

12,000(Profit)

3^{rd} Year Rs,

4,000(Loss)

4^{th} Year Rs,

18,000(Profit)

SOLUTION:
M/S ___________________________________
VALUATION OF GOODWILL
AVERAGE PROFIT METHOD
GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)
WHERE : AVERAGE PRFIT =
=
GOODWILL = 9000
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 =
=
GOODWILL = 51000
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 =
=
GOODWILL = 99820
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^{st} Year

4,800(p)

2^{nd} Year

7,200(L)

3^{rd} Year

10,000(L)

4^{th} Year

3,000(P)

5^{th} Year

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 =
=
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

2^{nd} Year

7,400

3^{rd} Year

20,000

4^{th} Year

3,500

5^{th} Year

7,300

SOLUTION:
M/S ______________________________________
VALUATION OF GOODWILL
AVERAGE PROFIT METHOD
GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)
WHERE : AVERAGE PRFIT =
=
GOODWILL = 8800
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 =
= Rs. 40000
WHERE: NORMAL PROFIT = CAPITAL EMPLOYED N.R.R.
NORMAL PROFIT = 160000 15 %
NORMAL PROFIT = Rs. 24000
WHERE: REMUNERATION = Rs. NIL
SUPER PROFIT = 4000024000NIL
GOODWILL = 16000
10.Capital employed on 31^{st} December, 1990 was Rs, 1, 00,000/. The Profits earned 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 =
=
=
= Rs. 44000
WHERE: NORMAL PROFIT = CAPITAL EMPLOYED N.R.R.
NORMAL PROFIT = 100000 15 %
NORMAL PROFIT = Rs. 15000
WHERE: REMUNERATION = Rs. NIL
SUPER PROFIT = 4400015000NIL
GOODWILL = 29000
11. The books of a business showed that the capital employed on 31^{st} December, 1992 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 =
=
=
= Rs. 68000
WHERE: NORMAL PROFIT = CAPITAL EMPLOYED N.R.R.
NORMAL PROFIT = 100000 10 %
NORMAL PROFIT = Rs. 10000
WHERE: REMUNERATION = Rs. NIL
SUPER PROFIT = 6800010000NIL
GOODWILL = 58000
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 =
=
=
= Rs. 10000
WHERE: NORMAL PROFIT = CAPITAL EMPLOYED N.R.R.
NORMAL PROFIT = 15000 15 %
NORMAL PROFIT = Rs. 7500
WHERE: REMUNERATION = Rs. 500
SUPER PROFIT = 100007500500
GOODWILL = 2000
13. M/s Vijay trading company earned net profit during the last four years was follows.
1^{st} Year

Rs, 57,000

2^{nd} Year

Rs, 44,000

3^{rd} Year

Rs, 61,000

4^{th} Year

Rs, 58,000

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 =
=
=
= Rs. 55000
WHERE: NORMAL PROFIT = CAPITAL EMPLOYED N.R.R.
NORMAL PROFIT = 150000 20 %
NORMAL PROFIT = Rs. 30000
WHERE: REMUNERATION = Rs. 500
SUPER PROFIT = 55000300006000
GOODWILL = 19000