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Accountancy · 2024 · 3 marks
CBSE 2024 · Region 5 · Set 2 · Q20
A business earned an average profit of ₹ 4,00,000 during the last few years. The normal rate of profit in the similar type of business is 10%. The…
A business earned an average profit of ₹ $\displaystyle 4,00,000$ during the last few years. The normal rate of profit in the similar type of business is $\displaystyle 10$%. The value of assets and liabilities of the business were ₹ $\displaystyle 20,00,000$ and ₹ $\displaystyle 5,00,000$ respectively. Calculate the value of goodwill of the firm by Super Profits Method if it is valued at $\displaystyle 2$ years purchase of super profit.
Marking-scheme solution
Average Profits = ₹$\displaystyle 4,00,000$
Capital Employed = Total Assets – Outside Liabilities
= ₹$\displaystyle 20,00,000$ – ₹$\displaystyle 5,00,000$
= ₹$\displaystyle 15,00,000$
Normal Profits= Normal rate of return x Capital Employed
$\displaystyle 100$
= $\displaystyle 10$/$\displaystyle 100$ x ₹$\displaystyle 15,00,000$
= ₹$\displaystyle 1,50,000$
.
Super Profits = Average Profits – Normal Profits
= ₹$\displaystyle 4,00,000$ - ₹$\displaystyle 1,50,000$
= ₹$\displaystyle 2,50,000$
Goodwill = Super Profits x Number of years purchase
Goodwill = ₹$\displaystyle 2,50,000$ x $\displaystyle 2$
= ₹$\displaystyle 5,00,000$
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CBSE Class 12 Accountancy past-paper question from the 2024 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.