Explain the different methods of valuation of goodwill?
Pooja purchased Ritik’s business on 1st April, 2019. It was agreed to value goodwill at three year’s purchase of average normal profits of the last four years. The profits of Ritik’s business for the last four years were:-
Year ended
Rs.
31st March, 2016
90,000
31st March, 2017
1,60,000
31st March, 2018
1,80,000
31st March, 2019
2,20,000
Following are noticed:-
During the year ended 31st March, 2016 an asset was sold at a gain (profit) of Rs. 10,000.
During the year ended 31st March, 2017 a machine got destroyed in accident and Rs. 30,000 was written off as a loss in profit and loss account.
During the year ended 31st March 2018, firm’s assets were not insured due to oversight. Insurance premium being Rs. 10,000.
Calculate the value of goodwill.
Anita and Anaya are partners sharing profits in the ratio of 3 : 2. They admit Ashna into partnership. It was agreed to value goodwill at three year’s purchase on the basis of weighted average profit for the past 5 years. Weights being assigned to each year were:-
The profits of 5 years were:-
Year ended
Profits
31st March, 2015
1,80,000
31st March, 2016
1,60,000
31st March, 2017
2,50,000
31st March, 2018
3,00,000
31st March, 2019
3,50,000
Book revealed:
An abnormal gain of Rs. 20,000 was earned in the year ended 31st March, 2016.
An abnormal loss of Rs. 10,000 was incurred in the year ended 31st March, 2017.
Expense of 50,000 incurred to overhaul a machine on 1st April, 2017 was debited to profit and loss account instead of being debited to machinery account. Depreciation is charged on machinery @20% on written down value method.
Closing stock as on 31st March 2018 was undervalued by Rs. 20,000.
Calculate the value of goodwill.
Amit and Akshay are partners in twins Ltd. They admit Ashish as partners on 1st April, 2019. They agreed to value goodwill at 3 year’s purchase by super profit method for which they decide to take average of last 5 years profits as follows:-
Year ended
Rs.
31st March 2015
2,00,000 (including gain of 25000 from the sale of fixed asset)
31st March 2016
1,70,000 (including abnormal loss of Rs.50,000)
31st March 2017
2,10,000
31st March 2018
2,30,000
31st March 2019
2,50,000
Capital employed in the firm is Rs. 15,00,000 and normal rate of return in similar business is 10%.
Calculate the value of goodwill.
RG and MK are the partners in the firm. Their capitals are 3, 00,000 and 2,00,000. During the year ended 31st March, 2010 the firm earned a profit of 1,50,000. Assuming that the normal rate of return is 20%. Calculate the value of goodwill of the firm:
By capitalization method
By super profit method if the goodwill is valued at 2 years purchase of super profit.
