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# TS Grewal Accountancy Class 12 Solutions Chapter 2 Goodwill: Nature and Valuation

TS Grewal Accountancy Class 12 Solutions Chapter 2 Goodwill: Nature and Valuation – Here are all the TS Grewal solutions for Class 12 Accountancy Chapter 2. This solution contains questions, answers, images, explanations of the complete Chapter 2 titled Goodwill: Nature and Valuation of Accountancy taught in Class 12. If you are a student of Class 12 who is using TS Grewal Textbook to study Accountancy, then you must come across Chapter 2 Goodwill: Nature and Valuation. After you have studied lesson, you must be looking for answers of its questions. Here you can get complete TS Grewal Solutions for Class 12 Accountancy Chapter 2 Goodwill: Nature and Valuation in one place.

## TS Grewal Accountancy Class 12 Solutions Chapter 2 Goodwill: Nature and Valuation

Question 1.
Goodwill is to be valued at three years purchase of four years average profit. Profits for last four years ending on 31st March of the firm were:
2015 ₹ 12,000; 2016 ₹ 18,000; 2017 ₹ 16,000; 2018 ₹ 14,000.
Calculate amount of Goodwill.
Solution:

Question 2.
The profit for the five years ending on 31st March, are as follows:
Year 2014 ₹ 4,00,000; Year 2015 ₹ 3,98,000; Year 2016 ₹ 4,50,000; Year 2017 ₹ 4,45,000; Year 2018 ₹ 5,00,000.
Calculate goodwill of the firm on the basis of 4 years purchase of 5 years average profit.
Solution:

Question 3.
Calculate value of goodwill on the basis of three years purchase of average profit of the preceding five years which were as follows:

Solution:

Question 4.
Calculate the value of firm’s goodwill on the basis of one and half years purchase of the average profit of the last three years. The profit for first year was ₹ 1,00,000, profit for the second year was twice the profit of the first year and for the third year profit was one and half times of the profit of the second year.
Solution:

Question 5.
A and B are partners sharing profits in the ratio of 3 : 2. They decided to admit C as a partner from 1st April, 2018 on the following terms:
(i) C will be given 2/5th share of the profit.
(ii) Goodwill of the firm be valued at two years purchase of three years normal average profit of the firm.
profits of the previous three years ended 31st March, were:
2018 – Profit ₹ 30,000 ( after debiting loss of stock by fire ₹ 40,000).
2017 – Loss ₹ 80,000 (includes voluntary retirement compensation paid ₹ 1,10,000).
2016 – Profit ₹ 1,10,000 (including a gain (profir) of ₹ 30,000 on the sale of fixed assets).
you are required to value the goodwell.
Solution:

Question 6.
X and Y are partners sharing profits and losses in the ratio of 3 : 2. They admit Z into partnership for 1/4th share in goodwill. Z brings in his share of goodwill in cash. Goodwill for this purpose is to be calculated at two years purchase of the average normal profit of past three years. Profits of the last three years ended 31st March, were:
2016 – Profit ₹ 50,000 (including profit on sale of assets ₹5,000).
2017 – Loss ₹ 20,000 (includes loss by fire ₹ 30,000).
2018 – Profit ₹ 70,000 (including insurance claim received ₹ 18,000 and interest on investments and Dividend received ₹ 8,000).
Calculate value of goodwill. Also, calculate goodwill brought in by Z.
Solution:

Question 7.
A and B are partners in a firm sharing profits and losses in the ratio of 2 : 1. They decide to take C into partnership for 1/4th share on 1st April, 2018. For this purpose, goodwill is to be valued at four times the average annual profit of the previous four or five years whichever is higher. The agreed profits for goodwill purpose of the past five years are:

Solution:

Question 8.
Sumit purchased Amit’s business on 1st April, 2018. Goodwill was decided to be valued at two years’ purchase of average normal profit of last
four years. The profits for the past four years were:

Books of Account revealed that:
(i) Abnormal loss of ₹ 20,000 was debited to Profit and Loss Account for the year ended 31st March, 2015.
(ii) A fixed asset was sold in the year ended 31st March, 2016 and gain (profit) of ₹ 25,000 was credited to Profit and Loss Account.
(iii) In the year ended 31st March, 2017 assets of the firm were not insured due to oversight. Insurance premium not paid was ₹ 15,000.
Calculate the value of goodwill.
Solution:

Question 9.
X and Y are partners in a firm. They admit Z into partnership for equal share. It was agreed that goodwill will be valued at three years purchase of average profit of last five years. Profits for the last five years were:

Books of Account of the firm revealed that:
(i) The firm had gain (profit) of ₹ 50,000 from sale of machinery sold in the year ended 31st March, 2015. The gain (profit) was credited in Profit and Loss Account.
(ii) There was an abnormal loss of ₹ 20,000 incurred in the year ended 31st March, 2016 because of a machine becoming obsolete in accident.
(iii) Overhauling cost of second hand machinery purchased on 1st July, 2016 amounting to ₹ 1,00,000 was debited to Repairs Account. Depreciation is charged @ 20% p.a. on Written Down Value Method.
Calculate the value of goodwill.
Solution:

Question 10.
Profits of a firm for the year ended 31st March for the last five years were:

Calculate value of goodwill on the basis of three years purchase of Weighted Average Profit after assigning weights 1, 2, 3, 4 and 5 respectively to the profits for years ended 31st March, 2014, 2015, 2016, 2017 and 2018.
Solution:

Question 11.
A and B are partners sharing profits and losses in the ratio of 5 : 3. On 1st April, 2018, C is admitted to the partnership for 1/4th share of profits. For this purpose, goodwill is to be valued at two years purchase of last three years profits (after allowing partners remuneration). Profits to be weighted 1 : 2 : 3, the greatest weight being given to last year. Net profit before partners remuneration were: 2015-16: ₹ 2,00,000; 2016-17: ₹ 2,30,000; 2017 -2018: ₹ 2,50,000. The remuneration of the partners is estimated to be ₹ 90,000 p.a. Calculate amount of goodwill.
Solution:

Question 12.
Manbir and Nimrat are partners and they admit Anahat into partnership. It was agreed to value goodwill at three tears purchase on Weighted Average Profit Method taking profits of last five years. Weights assigned to each year as 1, 2, 3, 4 and 5 respectively to profit for the year ended 31st March, 2014 to 2108. The profit for these years were: ₹ 70,000, ₹ 1,40,000, ₹ 1,00,000, ₹ 1,60,000 and ₹ 1,65,000 respectively.
Scrutiny of books of account revealed following information:
(i) There was an abnormal loss of ₹ 20,000 in the year ended 31st March, 2014.
(ii) There was an abnormal gain (profit) of ₹ 30,000 in the year ended 31st March, 2015.
(iii) Closing Stock as on 31st March, 2017 was overvalued by ₹ 10,000.
Calculate the value of goodwill.
Solution:

Question 13.
Calculate the goodwill of a firm on the basis of three years purchase of the weighted average profit of the last four years. The appropriate weights to be used and profits are:

On a scrutiny of the accounts, the following matters are revealed:
(i) On 1st December, 2016, a major repair was made in respect of the plant incurring ₹ 30,000 which was charged to revenue. The said sum is agreed to be capitalised for goodwill calculation subject to adjustment of depreciation of 10% p.a. on reducing balance method.
(ii) The closing stock for the year 2015-16 was overvalued by ₹ 12,000.
(iii) To cover management cost, an annual charge of ₹ 24,000 should be made for the purpose of goodwill valuation.
(iv) In 2015-16, a machine having a book value of ₹ 10,000 was sold for ₹ 11,000 but the proceeds were wrongly credited to Profit and Loss Account. No effect has been given to rectify the same. Depreciation is charged on machine @ 10% p.a. on reducing balance method.
Solution:

Question 14.
Gupta and Bose had a firm in which they had invested ₹ 50,000. On an average, the profits were ₹ 16,000. The normal rate of return in the industry is 15%. Goodwill is to be valued at four years purchase of profits in excess of profits @ 15% on the money invested. Value th goodwill.
Solution:

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

Question 16.
The average net profit expected in future by XYZ firm is ₹ 36,000 per year. Average capital employed in the business by the firm is ₹ 2,00,000. The normal rate of return from capital invested in this class of business in 10%. Remuneration of the partners is estimated to be ₹ 6,000 p.a. Find out the value of goodwill on the basis of two years purchase of super profit.
Solution:

Question 17.
A partnership firm earned net profits during the last three years ended 31st March, as follows: 2016 – ₹ 17,000; 2017 – ₹ 20,000; 2018 – ₹ 23,000.
The capital investment in the firm throughout the above-mentioned period has been ₹ 80,000. Having regard to the risk involved, 15% is considered to be a fair return on the capital. Calculate value of goodwill on the basis of two years purchase of average super profit earned during the above-mentioned three years.
Solution:

Question 18.
A partnership firm earned net profits during the past three years as follows:

Capital investment in the firm throughout the above-mentioned period has been ₹ 4,00,000. Having regard to the risk involved, 15% in considered to be a fair return on the capital. The remuneration of the partners during this period is estimated to be ₹ 1,00,000 p.a.
Calculate value of goodwill on the basis of two years purchase of average super profit earned during the above-mentioned three years.
Solution:

Question 19.
A business earned an average profit of ₹ 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 ₹ 22,00,000 and ₹ 5,60,000 respectively. Calculate the value of goodwill of the firm by super profit method if it is valued at 2$$\frac { 1 }{ 2 }$$ years purchase of super profits.
Solution:

Question 20.
Capital of the firm of Sharma and Verma is ₹ 2,00,000 and the market rate of interest is 15%. Annual salary to partners is ₹ 12,000 each. The profits for the last three years were ₹ 60,000; ₹ 72,000 and ₹ 84,000. Goodwill is to be valued at 2 years purchase of last 3 years average super profit. Calculate goodwill of the firm.
Solution:

Question 21.
A and B are equal partners. They decide to admit C for 1/3rd share. For the purpose of admission of C, goodwill of the firm is to be valued at four years purchase of super profit. Average capital employed in the firm is ₹ 1,50,000. Normal rate of return may be taken as 15% p.a. Average profit of the firm is ₹ 40,000. Calculate value of goodwill.
Solution:

Question 22.
On 1st April, 2018, an existing firm had assets of ₹ 75,000 including cash of ₹ 5,000. Its creditors amounted to ₹ 5,000 on that date. The firm had a Reserve of ₹ 10,000 while Partners Capital Accounts showed a balance of ₹ 60,000. If Normal Rate of Return is 20% and goodwill of the firm is valued at ₹ 24,000 at four years purchase of super profit, find average profit per year of the existing firm.
Solution:

Question 23.
The average profit earned by a firm is ₹ 1,00,000 which includes undervaluation of stock of ₹ 40,000 on an average basis. The capital invested in the business is ₹ 6,30,000 and the normal tare of return is 5%. Calculate goodwill of the firm on the basis of 5 time the super profit.
Solution:

Question 24.
The average profit earned by a firm is ₹ 7,50,000 which includes overvaluation of stock of ₹ 30,000 on an average basis. The capital invested in the business is ₹ 4,20,000 and the normal tare of return is 15%. Calculate goodwill of the firm on the basis of 3 time the super profit.
Solution:

Question 25.
Ayub and Amit are partners in a firm and they admit Jaspal into partnership w. e. f. 1st April, 2018. They agreed to value goodwill at 3 years purchase of Super Profit Method for which they decided to average profit of last 5 years. The profit for the last 5 years were:

The firm has total assets of ₹ 20,00,000 and Outside Liabilities of ₹ 5,00,000 as on that date. Normal Rate of Return in similar business is 10%.
Calculate value of goodwill.
Solution:

Question 26.
From the following information, calculate value of goodwill of the firm by applying Capitalisation Method: Total Capital of the firm ₹ 16,00,000.
Normal rate of return 10%. Profit for the year ₹ 2,00,000.
Solution:

Question 27.
A business has earned average profit of ₹ 1,00,000 during the last few years. Find out the value of goodwill by capitalisation method, given that the assets of the business are ₹ 10,00,000 and its external liabilities are ₹ 1,80,000. The normal rate of return is 10%.
Solution:

Question 28.
Form the following particulars, calculate value of goodwill of a firm by applying Capitalisation of Average Profit Method:
(i) Profits of last five consecutive years ending 31st March are: 2018 – ₹ 54,000; 2017 – ₹ 42,000; 2016 – ₹ 39,000; 2015 – ₹ 67,000 and 2014 – ₹ 59,000.
(ii) Capitalisation rate 20%.
(iii) Net assets of the firm ₹ 2,00,000.
Solution:

Question 29.
A business has earned average profit of ₹ 4,00,000 during the last few years and the normal rate of return in similar business is 10%. Find value of goodwill by:
(i) Capitalisation of Super Profit Method, and
(ii) Super Profit Method if the goodwill is valued at 3 years purchase of super profits.
Assets of the business were ₹ 40,00,000 and its external liabilities ₹ 7,20,000.
Solution:

Question 30.
A firm earns profit of ₹ 5,00,000. Normal Rate of Return in a similar type of business is 10%. The value of total assets (excluding goodwill) and total outsiders liabilities as on the date of goodwill are ₹ 55,00,000 and ₹ 14,00,000 respectively. Calculate value of goodwill according to Capitalisation of Super Profit Method as well as Capitalisation of Average Profit Method.
Solution:

Question 31.
Average profit of the firm is ₹ 2,00,000. Total assets of the firm are ₹ 15,00,000 whereas Partners Capital is ₹ 12,00,000. If normal rate of return in a similar business is 10% of the capital employed, what is the value of goodwill by Capitalisation of Super Profit?
Solution:

Question 32.
Rajan and Rajani are partners in a firm. Their capitals were Rajan ₹ 3,00,000; Rajani ₹ 2,00,000. During the year 2017-18, the firm earned a profit of ₹ 1,50,000. Calculate the value of goodwill of the firm by capitalisation of super profit assuming that the normal rate of return is 20%.
Solution:

Question 33.
Average profit of GS & amp Co. is ₹ 50,000 per year. Average capital employed in the business is ₹ 3,00,000. If the normal rate of return of capital employed is 10%, calculate goodwill of the firm by:
(i) Super Profit Method at three years purchase; and
(ii) Capitalisation of Super Profit Method.
Solution:

Question 34.
From the following information, calculate value of goodwill of the firm:
(i) At three years purchase of Average Profit.
(ii) At three years purchase of Super Profit.
(iii) On the basis of Capitalisation of Super Profit.
(iv) On the basis of Capitalisation of Average profit.
Information:
(a) Average Capital Employed is ₹ 6,00,000.
(b) Net Profit/(Loss) of the firm for the last three years ended are:
31st March, 2108 – ₹ 2,00,000, 31st March, 2107 – ₹ 1,80,000, and 31st March, 2106 – ₹ 1,60,000.
(c) Normal Rate of Return in similar business is 10%.
(d) Remuneration of ₹ 1,00,000 to partners is to be taken as charge against profit.
(e) Assets of the firm (excluding goodwill, fictitious assets and not-trade investments) is ₹ 7,00,000 whereas Partners Capital is ₹ 6,00,000 and Outside Liabilities ₹ 1,00,000.
Solution:

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