Goodwill Questions and Their Solutions

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GOODWILL QUESTIONS AND THEIR SOLUTIONS

HSC MAHARASHTRA STATE BOARD
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)
𝐓𝐎𝐓𝐀𝐋 𝐏𝐑𝐎𝐅𝐈𝐓−𝐓𝐎𝐓𝐀𝐋 𝐋𝐎𝐒𝐒

WHERE : AVERAGE PRFIT =
𝐓𝐎𝐓𝐀𝐋 𝐍𝐔𝐌𝐁𝐄𝐑 𝐎𝐅 𝐘𝐄𝐀𝐑𝐒
𝟐𝟎𝟎𝟎𝟎+𝟏𝟔𝟎𝟎𝟎+𝟐𝟒𝟎𝟎𝟎+𝟖𝟎𝟎𝟎+𝟏𝟐𝟎𝟎𝟎
=
𝟓
𝟖𝟎𝟎𝟎𝟎
=
𝟓
= 𝑹𝒔. 𝟏𝟔𝟎𝟎𝟎
GOODWILL = 16000 × 𝟏
GOODWILL = 16000
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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. 1st Year Rs. 16,000, 2nd Year, 15,000, 3rd
Year, 8,000(Loss), 4th Year, 7,000, 5th Year, 10,000. [Ans. Rs. 24,000]
SOLUTION:
M/S MONA, REENA & SONA CO

𝟏𝟔𝟎𝟎𝟎+𝟏𝟓𝟎𝟎𝟎−𝟖𝟎𝟎𝟎+𝟕𝟎𝟎𝟎+𝟏𝟎𝟎𝟎
=
𝟓
𝟒𝟎𝟎𝟎𝟎
=
𝟓
= 𝑹𝒔. 𝟖𝟎𝟎𝟎
GOODWILL = 8000 × 𝟑
GOODWILL = Rs. 24000

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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]
1st year, Rs, 40,000(Profit)
2nd Year, Rs, 60,000(Profit)
rd
3 Year, Rs, 10,000(Loss)
th
4 Year, Rs, 50,000(Profit)
th
5 Year, Rs, 30,000 (Loss)
th
6 Year, Rs, 80,000(Profit)
SOLUTION:
M/S _________________________________

𝟒𝟎𝟎𝟎𝟎+𝟔𝟎𝟎𝟎𝟎−𝟏𝟎𝟎𝟎+𝟓𝟎𝟎𝟎𝟎−𝟑𝟎𝟎𝟎𝟎+𝟖𝟎𝟎𝟎𝟎
=
𝟔
𝟏𝟗𝟎𝟎𝟎𝟎 𝟗𝟓𝟎𝟎𝟎
= = 𝑹𝒔.
𝟔 𝟑
𝟗𝟓𝟎𝟎𝟎
GOOD WILL = ×𝟑
𝟑

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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]
1st Year Rs, 10,000(Profit)
2nd Year Rs, 12,000(Profit)
rd
3 Year Rs, 4,000(Loss)
th
4 Year Rs, 18,000(Profit)
SOLUTION:
M/S ___________________________________

𝟏𝟎𝟎𝟎𝟎+𝟏𝟐𝟎𝟎𝟎−𝟒𝟎𝟎𝟎+𝟏𝟖𝟎𝟎𝟎
=
𝟒
𝟑𝟔𝟎𝟎𝟎
=
𝟒
= 𝑹𝒔. 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
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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 ______________________________________

𝟒𝟓𝟎𝟎𝟎+𝟓𝟓𝟎𝟎𝟎+𝟓𝟑𝟎𝟎𝟎
=
𝟑
𝟏𝟓𝟑𝟎𝟎𝟎
=
𝟑
= 𝑹𝒔. 𝟓𝟏𝟎𝟎𝟎
GOODWILL = 51000 × 𝟐
GOODWILL =Rs. 1,02,000

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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.

𝟏𝟎𝟓𝟖𝟎𝟎+𝟏𝟎𝟐𝟔𝟎𝟎+𝟗𝟖𝟒𝟎𝟎+𝟗𝟔𝟖𝟎𝟎+𝟗𝟓𝟓𝟎𝟎
=
𝟓
𝟒𝟗𝟗𝟏𝟎𝟎
=
𝟓
= 𝟗𝟗𝟖𝟐𝟎

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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]
1st Year 4,800(p)
nd
2 Year 7,200(L)
3rd Year 10,000(L)
4th Year 3,000(P)
th
5 Year 5,000(L)
Note: - Since the company’s average profit is negative. Therefore the firm’s goodwill is zero.
SOLUTION:
M/S ______________________________________

𝟒𝟖𝟎𝟎−𝟕𝟐𝟎𝟎−𝟏𝟎𝟎𝟎𝟎+𝟑𝟎𝟎𝟎−𝟓𝟎𝟎𝟎
=
𝟓
−𝟏𝟒𝟒𝟎𝟎
=
𝟓
= −𝟐𝟖𝟖𝟎
GOODWILL = 0
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]
1st Year 5,800
2nd Year 7,400
3 Year
rd 20,000
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4 Year
th 3,500
5th Year 7,300
SOLUTION:
M/S ______________________________________

𝟓𝟖𝟎𝟎+𝟕𝟒𝟎𝟎+𝟐𝟎𝟎𝟎𝟎+𝟑𝟓𝟎𝟎+𝟕𝟑𝟎𝟎
=
𝟓
𝟒𝟒𝟎𝟎𝟎
=
𝟓
= 𝟖𝟖𝟎𝟎
GOODWILL = 26400
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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 ______________________________________
SUPER PROFIT METHOD
GOODWILL = (SUPER PROFIT) (NUMBER OF YEARS PURCHASE)
WHERE : - SUPER PROFIT = AVERAGE PROFIT – NORMAL PROFIT - REMUNERATION

= Rs. 40000
WHERE: NORMAL PROFIT = CAPITAL EMPLOYED ×N.R.R.
NORMAL PROFIT = 160000 × 15 %
NORMAL PROFIT = Rs. 24000
WHERE: REMUNERATION = Rs. NIL
SUPER PROFIT = 40000-24000-NIL

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10. Capital employed on 31 December, 1990 was Rs, 1, 00,000/-. The Profits earned by the business for
st
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 ______________________________________
SUPER PROFIT METHOD
GOODWILL = (SUPER PROFIT) × (NUMBER OF YEARS PURCHASE)

𝟑𝟎𝟎𝟎𝟎+𝟒𝟎𝟎𝟎𝟎+𝟓𝟎𝟎𝟎𝟎+𝟒𝟎𝟎𝟎𝟎+𝟔𝟎𝟎𝟎𝟎
=
𝟓
𝟐𝟐𝟎𝟎𝟎𝟎
=
𝟓
= Rs. 44000

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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 ______________________________________
SUPER PROFIT METHOD

𝟔𝟎𝟎𝟎𝟎+𝟓𝟓𝟎𝟎𝟎+𝟕𝟓𝟎𝟎𝟎+𝟖𝟓𝟎𝟎𝟎+𝟔𝟓𝟎𝟎𝟎
=
𝟓
𝟑𝟒𝟎𝟎𝟎𝟎
=
𝟓
= Rs. 68000

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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
SUPER PROFIT METHOD

𝟕𝟎𝟎𝟎+𝟏𝟑𝟎𝟎𝟎+𝟏𝟐𝟎𝟎𝟎+𝟖𝟎𝟎𝟎
=
𝟒
𝟒𝟎𝟎𝟎𝟎
=
𝟒
= Rs. 10000
WHERE: REMUNERATION = Rs. 500
SUPER PROFIT = 10000-7500-500
GOODWILL = Rs. 4000

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13. M/s Vijay trading company earned net profit during the last four years was follows.
1st Year Rs, 57,000
2nd Year Rs, 44,000
3rd Year Rs, 61,000
4th 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
SUPER PROFIT METHOD

𝟓𝟕𝟎𝟎𝟎+𝟒𝟒𝟎𝟎𝟎+𝟔𝟏𝟎𝟎𝟎+𝟓𝟖𝟎𝟎𝟎
=
𝟒
𝟐𝟐𝟎𝟎𝟎𝟎
=
𝟒
= Rs. 55000
WHERE: REMUNERATION = Rs. 500 × 𝟏𝟐 = 𝟔𝟎𝟎𝟎
SUPER PROFIT = 55000-30000-6000

Goodwill Questions and Their Solutions

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Goodwill Questions and Their Solutions

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OMTEX CLASSES

“The Home of success”

GOODWILL QUESTIONS AND THEIR SOLUTIONS

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

𝐓𝐎𝐓𝐀𝐋 𝐏𝐑𝐎𝐅𝐈𝐓−𝐓𝐎𝐓𝐀𝐋 𝐋𝐎𝐒𝐒

GOODWILL QUESTIONS AND THEIR SOLUTIONS

M/S MONA, REENA & SONA CO

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

𝐓𝐎𝐓𝐀𝐋 𝐏𝐑𝐎𝐅𝐈𝐓−𝐓𝐎𝐓𝐀𝐋 𝐋𝐎𝐒𝐒

GOODWILL = Rs. 24000

GOODWILL QUESTIONS AND THEIR SOLUTIONS

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

𝐓𝐎𝐓𝐀𝐋 𝐏𝐑𝐎𝐅𝐈𝐓−𝐓𝐎𝐓𝐀𝐋 𝐋𝐎𝐒𝐒

GOODWILL = Rs. 95000

GOODWILL QUESTIONS AND THEIR SOLUTIONS

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

𝐓𝐎𝐓𝐀𝐋 𝐏𝐑𝐎𝐅𝐈𝐓−𝐓𝐎𝐓𝐀𝐋 𝐋𝐎𝐒𝐒

GOODWILL = Rs. 27000

GOODWILL QUESTIONS AND THEIR SOLUTIONS

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

𝐓𝐎𝐓𝐀𝐋 𝐏𝐑𝐎𝐅𝐈𝐓−𝐓𝐎𝐓𝐀𝐋 𝐋𝐎𝐒𝐒

GOODWILL =Rs. 1,02,000

GOODWILL QUESTIONS AND THEIR SOLUTIONS

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

𝐓𝐎𝐓𝐀𝐋 𝐏𝐑𝐎𝐅𝐈𝐓−𝐓𝐎𝐓𝐀𝐋 𝐋𝐎𝐒𝐒

GOODWILL = Rs. 299460

GOODWILL QUESTIONS AND THEIR SOLUTIONS

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

𝐓𝐎𝐓𝐀𝐋 𝐏𝐑𝐎𝐅𝐈𝐓−𝐓𝐎𝐓𝐀𝐋 𝐋𝐎𝐒𝐒

GOODWILL QUESTIONS AND THEIR SOLUTIONS

AVERAGE PROFIT METHOD

GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

𝐓𝐎𝐓𝐀𝐋 𝐏𝐑𝐎𝐅𝐈𝐓−𝐓𝐎𝐓𝐀𝐋 𝐋𝐎𝐒𝐒

GOODWILL QUESTIONS AND THEIR SOLUTIONS

SUPER PROFIT METHOD

GOODWILL = (SUPER PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : - SUPER PROFIT = AVERAGE PROFIT – NORMAL PROFIT - REMUNERATION

WHERE: NORMAL PROFIT = CAPITAL EMPLOYED ×N.R.R.

NORMAL PROFIT = 160000 × 15 %

NORMAL PROFIT = Rs. 24000

WHERE: REMUNERATION = Rs. NIL

SUPER PROFIT = 40000-24000-NIL

GOODWILL = Rs. 48000

GOODWILL QUESTIONS AND THEIR SOLUTIONS

the last 5 years where. [Ans. Rs. 87,000]

SUPER PROFIT METHOD

GOODWILL = (SUPER PROFIT) × (NUMBER OF YEARS PURCHASE)

WHERE : - SUPER PROFIT = AVERAGE PROFIT – NORMAL PROFIT - REMUNERATION

WHERE: NORMAL PROFIT = CAPITAL EMPLOYED ×N.R.R.

NORMAL PROFIT = 100000 × 15 %

NORMAL PROFIT = Rs. 15000

WHERE: REMUNERATION = Rs. NIL

SUPER PROFIT = 44000-15000-NIL

GOODWILL = Rs. 87000

GOODWILL QUESTIONS AND THEIR SOLUTIONS

SUPER PROFIT METHOD

GOODWILL = (SUPER PROFIT) × (NUMBER OF YEARS PURCHASE)