Ance Philip (Admin Exe (MBA ) IPCC 2013) (80 Points)
01 June 2012HI,
A firm has an average profit of Rs. 60000; rate of return on capital employed is 12.5%p.a.; total captial employed in the firm was Rs. 400000. Goodwill on the basis of two year's purchase of super profit is? (explain)
Can someone explain the topic Goodwill and its calculation in Accounting?
Giridhar S Karandikar
(Team Lead)
(7548 Points)
Replied 01 June 2012
Super Profits are the exces profits over the normal profits that can be earned.
ROCE would be 12.5% on 400000 i.e. 50000
Exces of Avg Profit over normal profits is Super Profits which comes to 10000(60000-50000)
therefore GW wud be 10000*2= Rs.20000.
Ance Philip
(Admin Exe (MBA ) IPCC 2013)
(80 Points)
Replied 01 June 2012
Thank you Giridhar.
Can you explain me Goodwill and its computation in Accounting?
Thanks in advance.
chandu
(student)
(1051 Points)
Replied 01 June 2012
haa u can find by following.....
super profit =average profits-normnal profit
goodwill =super profit*no.of year.
chandu
(student)
(1051 Points)
Replied 01 June 2012
good will is the value of reputation of a firm w.r.t profits excpeted in future on avg profits.
in every case we value the good will account which is u already studied
3methods r there in cal purpose.
so simply good will is not a ficitious asset.i thought else is u already studied in ur books.its enough
intermediate(ipc)course
(no)
(1460 Points)
Replied 01 June 2012
average profit = 60000
rate of return = 12.5%
capital employed = 400000
rate of return on capital employed = 400000*12.5% = 50000
super profit = 60000-50000 = 10000
goodwill 2 yr purchase of super profit = 10000*2 = 20000
ravi kumar s
(student)
(84 Points)
Replied 02 June 2012
average profit: 12.5% of 400000 = 50000
actual profit = 60000
so the excess is 10000
and the goodwill is 10000x2= 20000
20000 is the goodwill of the company or firm..
CA. Nitin Gupta
(CA)
(347 Points)
Replied 03 June 2012
Computation of Goodwill is correct in all above (Rs. 20,000).
Goodwill is calculated whenever there is any change in Profit Sharing Ratio(PSR). Becoz due to such change some partners will be in gain and some partner will sacrifice future profits.
So on the basis of estimated future profit Goodwill is calculated and account settlement will be through Partner's Capital/current account.
This Goodwill is only computed but not recorded in books becoz as per AS 10 onlu purchased goodwill can be recorded in the books.
koustav de
(student)
(26 Points)
Replied 15 June 2012
2007-profit RS.50000
08-loss 20000(including loss by fire 30000)
09-profit 70000(including insurance claim rs.18000 nd int on investment nd dividends 8000)
calculate the value f goodwill.........ans is 66,000
Tejaswi Kasturi
(student-cpt)
(427 Points)
Replied 15 June 2012
@ koustav de:The goodwill is calculated on the basis of x no. of years purchase of avg profits of three years. ( the number with which we multiply the avg. profits is the no. of years of purchase of goodwill, i.e. the number of years the goodwill will help the firm).
avg. profit for last three years = (50,000 - 20,000 + 70,000)/3 = (30,000 + 70,000)/3 = 1,00,000/3 = 33,333.33 if we assume two years purchase of goodwill, the goodwill will be 2*33,333.33 = 66,666.666. I don't think it will be 66,000
all the losses and income shown in brackets must be included for calculation of avg. profits
koustav de
(student)
(26 Points)
Replied 16 June 2012
year ended 31.3.2010 rs.8,00,000
31.3.09 rs.1500000
31.3.08 rs.1800000
31.3.07 rs.400000(loss)
31.3.06 rs130000
Calculate the goodwill on the basis of 3yrs purchase of average profit of the preceeding five years
my ans is=2298000 nd bk ans=30,00,000
Tejaswi Kasturi
(student-cpt)
(427 Points)
Replied 16 June 2012
If the profit on 31/3/06 is 13,00,000 instead of 1,30,000 the answer given in book would be correct. other wise your answer is correct
CAclubindia
