Valuation of Goodwill
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Other
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12th Grade
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Hard
Manoj Kumar
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4 Slides • 7 Questions
1
Goodwill
Valuation
2
1. Average Profit Method
10 + 20 +30
------------------ = 20
3
Here the goodwill is valued at an agreed number of ‘years’ purchase of the average profits of the past a few years
Eg: Net profit of a business for the last 3 years was Rs. 10000, 20000 and 30000, the partners decided to calculate the goodwill based on 2 years purchase of average profit
:. Average Profit = (10000 + 20000 + 30000) / 3 = 20000
3
Multiple Choice
The goodwill of the a firm is estimated at two years' purchase of the average profit of the last five years ending on 31st March, which are as follows:2014,₹15,000 (profit);2015,₹18,000(Profit),2016₹7,000(Loss); 2017 ₹10,000 (profit) and 2018,₹4,000 (Profit). Average profit of the firm will be
9400
8400
8000
7000
4
Multiple Choice
The goodwill of the a firm is estimated at two years' purchase of the average profit of the last five years ending on 31st March, which are as follows:2014,₹15,000 (profit);2015,₹18,000(Profit),2016₹7,000(Loss); 2017 ₹10,000 (profit) and 2018,₹4,000 (Profit). Calculate the value of the goodwill of the firm
8000
16800
18800
16000
5
Multiple Choice
Goodwill of the firm on the basis of two years purchase of average profit of the last three Years is ₹25,000. Find average profit
50,000
25,000
10,000
12,500
6
2. Weighted Average Profit Method
Steps:
1.Assign the weights for each year - 1, 2, 3 etc.
2. Find the Product - Weight X Profit
3. Find the Total of Products
4. Divide the Total of Products by Total Weights
Multiply the Weighted Average Profit X No. of Years Purchase
7
Multiple Choice
A firm's profit for the last five years were ₹20,000; ₹30,000; ₹40,000;₹50,000 and ₹60,000. Calculate the value of firm's goodwill on the basis of three years purchase of weaighted average profits after using weights of 1,2,3,4 and 5 respectively
46,666
1,40,000
40,000
none of the above
8
Multiple Choice
A firm's profit for the last five years were ₹20,000; ₹30,000; ₹40,000;₹50,000 and ₹60,000. Calculate the weaighted average profits after using weights of 1,2,3,4 and 5 respectively
14,4000
16,667
40,000
None of the abovve
9
Multiple Choice
A firm's profit for the last five years were ₹20,000; ₹30,000; ₹40,000;₹50,000 and ₹60,000. Calculate the total product of weighted average profits after using weights of 1,2,3,4 and 5 respectively
16,666
7,00,000
1,40,000
40,000
10
3. Super Profit Method
Super Profit means the excess of the actual profits earned by a business unit over and above the normal return expected on investment in similar class of business. Under this method:
Super Profit = Actual Profit – Normal Profit
Normal Profit = Capital Employed x NRR / 100
Goodwill = Super Profit X No. of years
Actual Profit may be the Average Profit NRR = Normal Rate of
Return
11
Multiple Choice
Average Profit - 20,000, Capital Employed – 200,000 and NRR = 8% Goodwill based on 2 years purchase.
8,000
4,000
16,000
None of the above
Goodwill
Valuation
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