POLICE D.A.V.
PUBLIC SCHOOL
CLASS 12 ACCOUNTANCY WORKSHEET- 3
CHAPTER – VALUATION OF GOODWILL
1. The goodwill of a firm is valued at 4 years’ purchase of average profits of last five years. The profits of
the last five years were:
Year Profit (₹)
2018-19 2,00,000
2019-20 (3,00,000)
2020-21 4,50,000 (including an abnormal gain of ₹50,000)
2021-22 3,50,000 (after charging an abnormal loss of ₹90,000)
2022-23 2,60,000
Calculate the amount of goodwill.
[Ans. Value of goodwill = ₹8,00,000]
2. X purchased the business of Y from 1st April, 2023. For this purpose goodwill is to be valued at 100% of
the average annual profits of the last four years. The profits shown by Y’s business for the last four
years. The profits shown by Y’s business for last 4 years were:
Year ended ₹
st
31 March, 2020 Profit 1,00,000 (after debiting loss of stock by fire ₹50,000)
31st March, 2021 Loss 1,50,000 (includes voluntary retirement compensation paid ₹80,000)
31st March, 2022 Profit 1,50,000
31st March, 2023 Profit 2,00,000
Verification of books of accounts revealed the following:
(i) During the year ended 31st March, 2021, machine got destroyed in accident and ₹60,000 was
written off as loss in Profit & Loss Account.
(ii) On 1st July, 2021, Two computers costing ₹40,000 each were purchased and were debited to
Travelling Expenses Account on which depreciation is to be charged @ 10% p.a. on Straight Line
Method.
Calculate the value of goodwill.
[Ans. Value of goodwill = ₹1,39,000]
3. A, B and Care partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. They decide to take D
into partnership for 1/4th share on 1st April, 2022. For this purpose, goodwill is to be valued at 3 times
the average annual profits of the previous four or five years whichever is higher. The agreed profits for
goodwill purpose of the past five years are as follows :
₹
Year ending on 31st March 2018 1,30,000
Year ending on 31st March 2019 1,20,000
Year ending on 31st March 2020 1,50,000
Year ending on 31st March 2021 1,10,000
Year ending on 31st March 2022 2,00,000
Calculate the value of Goodwill.
[Ans. Goodwill ₹4,35,000]
4. A, B and C are partners sharing profits and losses equally. They agree to admit D for equal share. For
this purpose goodwill is to be valued at 3 year's purchase of average profits of last 5 years which were
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as follows :
₹
Year ending on 31st March 2018 60,000 (Profit)
Year ending on 31st March 2019 1,50,000 (Profit)
Year ending on 31st March 2020 20,000 (Loss)
Year ending on 31st March 2021 2,00,000 (Profit)
Year ending on 31st March 2022 1,85,000 (Profit)
On 1st October, 2021 a computer costing ₹40,000 was purchased and debited to office expenses
account on which depreciation is to be charged @25% p.a. Calculate the value of goodwill.
[Ans. Goodwill ₹3,66,000.]
5. The profits earned by a firm during the last four years were as follows :
Year ended 31st March Profits (₹)
2018 80,000
2019 1,00,000
2020 10,000
2021 1,50,000
Calculate the value of goodwill on the basis of three year's purchase of weighted average profits.
Weights to be used are 1, 2, 3 and 4 respectively to the profits for 2018, 2019, 2020 and 2021.
[Ans. Goodwill ₹3,63,000.]
6. Following information is available about the business of a firm :
(i) Profits : In 2019, ₹40,000; In 2020, ₹50,000; In 2021, ₹60,000,
(ii) Non- recurring income of ₹1,000 is included in the profits of 2020,
(iii) Profits of 2019 have been reduced by ₹6,000 because goods were destroyed by fire,
(iv) Goods have not been insured but it is thought to insure them in future. The insurance premium is
estimated at ₹400 per year.
(v) Reasonable remuneration of the proprietor of business is ₹6,000 per year, but it has not been taken
into account for calculation of above mentioned profits,
(vi) Profits of 2021 include ₹5,000 income on investment.
Goodwill is agreed to be valued at two years’ purchase of weighted average profits of past three years.
The appropriate weights to be used are:-
2019: 1; 2020: 2; 2021: 3.
[Ans. Value of goodwill = ₹90,200]
7. Calculate the value of goodwill on the basis of three years’ purchase of the weighted average profits of
the last five years. Profits to be weighted 1, 2, 3, 4 and 5, the greatest weight to be given to last year.
Profits of the last five years were:
Year ended Profit/ Loss ₹
31st March, 2019 Profit 80,000
st
31 March, 2020 Profit 1,05,000 (after considering abnormal loss of
₹41,500)
st
31 March, 2021 Loss 20,000 (after considering abnormal gain ₹40,000)
31st March, 2022 Profit 1,80,000
st
31 March, 2023 Profit 2,00,000
Books of Accounts of the firm revealed that:
i) Closing stock as on 31st March, 2019 was overvalued by ₹40,000.
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ii) Repairs to Machinery ₹60,000 were wrongly debited to Machinery Account on 1st July, 2021.
Depreciation was charged on Machinery @ 20% p.a. on diminishing balance method.
[Ans. Value of goodwill ₹3,60,000]
8. A firm earned profits of ₹80,000, ₹1,00,000, ₹1,20,000 and ₹1,80,000 during 2019-20, 2020-21, 2021-
22 and 2022-23 respectively. The firm has capital investment of ₹5,00,000. A fair rate of return on
investment is 15% p.a. Calculate goodwill of the firm based on three years’ purchase of average super
profits of last four years.
[Ans. Value of Goodwill ₹1,35,000]
9. Capital invested in a firm is ₹3,00,000. Normal rate of return is 10%. Average profits of the firm are
₹41,000 (after an abnormal loss of ₹2,000). Calculate goodwill at 5 times the super profits.
[Value of goodwill ₹65,000]
10. The capital of the firm of Anuj and Benu is ₹10,00,000 and the market rate of interest is 15%. Annual
salary to the partners is ₹60,000 each. The profits for the last three years were ₹2,80,000, ₹3,80,000
and ₹4,20,000. Goodwill of the firm is to be valued on the basis of two years’ purchase of last three
years average super profits. Calculate the goodwill of the firm.
[Ans. Value of Goodwill ₹1,80,000]
11. Find out the capital employed from the following information:
Normal Rate of Return: 12%
Profits: 2017-18 ₹ 80,000
2018-19 ₹1,30,000
2019-20 ₹1,56,000
Goodwill valued at 3 years, purchase of Super Profits ₹1,50,000
[Ans. Capital employed= ₹6,00,000]
12. A and B are partners. They admit C for 1/4th share in profits. For this purpose goodwill is to be valued at
three years’ purchase of super profits.
Following information is provided to you :
A’s Capital ₹5,00,000
B’s Capital ₹4,00,000
General Reserve ₹1,50,000
Profit & Loss A/c (Cr.) ₹30,000
Sundry Assets ₹12,00,000
The normal rate of return is 15 % p.a. Average profits are ₹2,00,000 per year. You are required to
calculate C’s share of Goodwill.
[C’s share of goodwill ₹28,500]
13. On 1st April, 2020, a firm had assets of ₹1,00,000 excluding stock of ₹20,000. Partners’ capital accounts
showed a balance of ₹60,000. The current liabilities were ₹10,000 and the balance constituted the
reserve. If the normal rate of return is 8%, the Goodwill of the firm is valued at ₹60,000 at four years’
purchase of super profit, find the average profits of the firm.
[Ans. Average Profit = ₹23,800]
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14. On April 1, 2020, an existing firm had assets of ₹5.00,000 including cash of ₹20,000. The firm had a
general reserve of ₹90,000, partners’ capital accounts showed a balance of ₹3,80,000 and creditors
amounted to ₹30,000. If the normal rate of return is 20 % and the goodwill is valued at ₹64,000 at 4
years’ purchase of super profits, find the average profits of the firm.
[Average Profits = ₹1,10,000]
15. The average profits of a firm are ₹48,000. The total assets of the firm are ₹8,00,000. Value of other
liabilities is ₹5,00,000. Average Rate of Return in the same business is 12%.
i) Calculate goodwill from capitalization of average profits method.
ii) Calculate value of goodwill according to capitalization of super profits method
[Ans. i) ₹1,00,000; ii) ₹1,00,000]
16. The following information relates to a partnership firm:
(a) Profits/ Losses for the last 6 years:
Year Profits/Losses ₹
st
1 year Profit 20,000
2nd year Profit 60,000
rd
3 year Loss 10,000
th
4 year Profit 60,000
th
5 year Profit 50,000
6th year Profit 72,000
i) Average capital employed is ₹2,00,000
ii) Rate of normal profits is 15%
Find out the value of goodwill on the basis of: 1) Four years’ purchase of average profits 2) Four
years’ purchase of super profits & 3) Capitalisation of super profits.
[Ans. 1) ₹1,68,000; 2) ₹48,000; 3) ₹80,000]
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