Super Profit Method

Q. Three Chartered Accountants A, B and C form a partnership, profits being shared in the ratio of 3 : 2 : 1 subject to the following:
(a) Cs share of profit guaranteed to be not less than ₹ 15, 000 p.a.
(b) B gives a guarantee to the effect that gross fee earned by him for the firm shall be equal to his average gross fee of the preceeding five years when he was carrying on profession alone, which on an average works out at ₹ 25, 000.
The profit for the first year of the partnership are ₹ 75, 000. The gross fee earned by B for the firm is ₹ 16, 000. You are required to show Profit and Loss Appropriation Account after giving effect to the above.

Q. From the following information, calculate Liquid Ratio:

Particulars			₹	Particulars	₹​
Current Assets			2, 00, 000	Trade Receivables	1, 10, 000
Inventories			50, 000	Current Liabilities	70, 000
Prepaid Expenses			10, 000

Q. Capital of the firm of Sharma and Verma is ₹ 2, 00, 000 and the market rate of interest is 15%. Annual salary to partners is ₹ 12, 000 each. The profits for the last three years were ₹ 60, 000; ₹ 72, 000 and ₹ 84, 000. Goodwill is to be valued at 2 years purchase of last 3 years average super profit.
Calculate goodwill of the firm.

Q.

A firm earns Rs. 1, 00, 000 as its annual profit, the normal rate of profit being 5 %. Assets of the firm are Rs. 15, 00, 000 excluding goodwill and liabilities are Rs. 5, 00, 000 .The value of goodwill by capitalisation method will be:

1. Rs 30, 00, 000

2. Rs 10, 00, 000

3. Rs 20, 00, 000

4. Rs 11, 00, 000

Q.

From the following Balance Sheet and other information, calculate following ratios:

(i) Debt-Equity Ratio (ii) Working Capital Turnover Ratio (iii) Trade Receivables Turnover Ratio

Balance Sheet as at March 31, 2017
Particulars	Note No.	Rs.
I. Equity and Liabilities:
1. Shareholders’ funds
a) Share capital		10, 00, 000
b) Reserves and surplus		9, 00, 000
2. Non-current Liabilities
Long-term borrowings		12, 00, 000
3. Current Liabilities
Trade payables		5, 00, 000
Total		36, 00, 000
II. Assets
1. Non-current Assets
a) Fixed assets
Tangible assets		18, 00, 000
2. Current Assets
a) Inventories		4, 00, 000
b) Trade Receivables		9, 00, 000
c) Cash and cash equivalents		5, 00, 000
Total		36, 00, 000

Additional Information: Revenue from Operations Rs. 18, 00, 000

Q.

A firm earns Rs. 40, 000 as its average profits. The normal rate of return is 10%. Total assets of the firm are Rs. 10, 00, 000 and its total external liabilities are Rs. 5, 00, 000. Calculate the amount of goodwill:

1. Rs 87, 500

2. Rs 50, 000

3. Rs 2, 00, 000

4. Rs 1, 00, 000

Q.

The capital employed of a business is 1, 20, 000. The normal rate of return is 10%. A firm is able to earn an average profit of 15, 000. Calculate Super Profits.

1. Credited

2. None of the above

3. Either A or B

4. Debited

Q. A and B are equal partners. They decide to admit C for 1/3rd share. For the purpose of admission of C, goodwill of the firm is to be valued at four years purchase of super profit. Average capital employed in the firm is ₹ 1, 50, 000. Normal rate of return may be taken as 15% p.a. Average profit of the firm is ₹ 40, 000. Calculate value of goodwill.

Q. profit = Average profit - Normal profit

1. Gross
2. Super
3. Abnormal
4. Net

Q. Current Assets can be calculated by adding Working Capital and Current Liabilities.

1. False
2. True

Q. = Capital employed x Normal rate of return/100

1. Super profit
2. Average profit
3. Gross profit
4. Normal profit

Q.

Capital Employed =

1. Trade Assets – Outside Liabilities.

2. Total assets - total liablities

3. Fixed assets - current liabilities

4. Total liabilities - total assets

Q.

Capitalised Value of Super Profits =

1. None of the above

2. Average Profits X (100 / Normal Rate of Return)

3. Super Profits X (100 / Average Rate of Return)

4. Super Profits X (100 / Normal Rate of Return)

Q.

Q. ​A, B and C were partners in a firm sharing profits in the ratio of 5 : 3 ; 2 . On 31st March, 2017, their Balance Sheet was as follows:​

Liabilities		₹	Assets	₹
Creditors		11, 000	Building	20, 000
Reserves		6, 000	Machinery	30, 000
Capital A/cs:			Stock	10, 000
A	30, 000		Patents	11, 000
B	25, 000		Debtors	8, 000
C	15, 000	70, 000	Cash	8, 000
		87, 000		87, 000

A died on 1st October, 2017 . It was agreed among his executors and the remaining partners that:
(i) Goodwill to be valued at $2^{\raisebox{1ex}{$1$}\!\left/ \!\raisebox{-1ex}{$2$}\right.}$ years' purchase of the average profit of the previous 4 years , which were 2013-14: ₹ 13, 000; 2014-15: ₹ 12, 000; 2015-16: ₹ 20, 000 and 2016-17: ₹ 15, 000.
(ii) Patents be valued at ₹ 8, 000; Machinery at ₹ 28, 000; and Building at ₹ 25, 000.
(iii) Profits for the year 2017-18 be taken as having accrued at the same rate as that of the previous year .
(iv) Interest on capital be provided @ 10% p.a.
(v) Half of the amount due to A to be paid immediately to the executors and the balance transferred to his ( Executors) Loan Account.
Prepare A's Capital Account and A's Executors Account as on 1st October, 2017.

Q.

The profits and losses for the last years are 2001-02. Loss Rs. 10, 000; 2002-03 Loss Rs. 2, 500; 2003-04 Profit Rs. 98, 000 & 2004-05 Profit Rs. 76, 000. The average capital employed in the business is Rs. 2, 00, 000. The rate of interest expected from capital invested is 12%. Calculate the value of goodwill on the basis of two years purchase of super profits based on the average of four years.

1. Rs 82, 500

2. Rs 32, 750

3. Rs 87, 500

4. Rs 92, 500

Q.

Q.

From the following receipts and payments and information given below, Prepare Income and Expenditure Account and opening Balance Sheet of Adult Literacy Organisation as on December 31, 2006.

Receipt and Payment Account for the year ending as on December 31, 2006
Receipts		Amount Rs	Payments	Amount Rs
Balance b/d			General Expenses	3, 200
Cash in hand		4, 000	News paper	1, 850
Cash at Bank		15, 550	Electricity	3, 000
Subscriptions			Fixed deposit with bank (on 31.06.2006) @ 10% p.a.	18, 000
2005	1, 200
2006	26, 500		Books	7, 000
2007	500	28, 200	Salary	3, 600
Sale of old newspapers		1, 250	Rent	6, 500
Govt. grant		12, 000	Postage charges	300
Sale of old furniture (book value Rs5000)		3, 700	Furniture (purchased)	10, 500
Interest received on FD		450	Balance c/d
			Cash in Hand	3, 000
			Cash at Bank	8, 200
		65, 150		65, 150

Information:

(i)	Subscription outstanding as on 31.12.2005 Rs 2, 000 and on December 31, 2006 Rs 1, 500.
(ii)	On December 31, 2006 Salary outstanding Rs 600, and one month Rent paid in advance.
(iii)	On Jan. 01, 2005 organisation owned Furniture Rs 12, 000, Books Rs 5, 000.

Q.

Under which method, goodwill is calculated by dividing super profits with normal rate of return

1. Capitalization method

2. Weighted Profit method

3. Avg. Profits method

4. Super Profits method

Q.

Under this method of calculating goodwill, we calculate the super profits and then assess the capital needed for earning such super profits on the basis of normal rate of return. This method is___

1. Capitalisation of Average Profits Method

2. None of the above

3. Capitalisation of Future Profits Method

4. Capitalisation of Super Profits Method

Q.

Amit, Babita and Sona form a partnership firm, sharing profits in the ratio of 3 : 2 : 1, subject to the following :

(i)	Sona’s share in the profits, guaranteed to be not less than Rs 15, 000 in any year.
(ii)	Babita gives guarantee to the effect that gross fee earned by her for the firm shall be equal to her average gross fee of the proceeding five years, when she was carrying on profession alone (which is Rs 25, 000). The net profit for the year ended March 31, 2017 is Rs 75, 000. The gross fee earned by Babita for the firm was Rs 16, 000.

You are required to show Profit and Loss Appropriation Account (after giving effect to the alone).

Q.

ABC Ltd earns a profit of Rs 50, 000 by employing a capital of Rs 2, 00, 000, The normal rate of return of a firm is 20%. Calculate Goodwill:

1. Rs 100000

2. Rs 200000

3. Rs 87500

4. Rs 50000

Q. The average profit earned by a firm is Rs. $1,00,000$ which includes undervaluation of stock of Rs. $40,000$ on an average basis. The capital invested in the business is Rs.$6,30,000$ and the normal rate of return is $5$. Calculate goodwill of the firm on the basis of $5$ times the super profit.

Q.

Which of the following is not a method to calculate goodwill by using capitalization method ?

1. Capitalisation of Super Profits Method

2. Capitalisation of Future Profits Method

3. Capitalisation of Average Profits Method

4. None of these

Q.

Q. Manbir and Nimrat are partners and they admit Anahat into partnership. It was agreed to value Goodwill at three years purchase on weighted average profit method taking profits of last five years. Weights assigned to each year as 1, 2, 3, 4 and 5 respectively to profits for the year ended 31st march 2014 to 2018. The profits for these years were Rs.70, 000, Rs 1, 40, 000, Rs.1, 00, 000, Rs. 1, 60, 000 and Rs. 1, 65, 000 respectively.
Scrutiny of books of account revealed following information:
(i) There was an abnormal loss of Rs.20, 000 in the year ended 31st March, 2014.
(ii) There was an abnormal gain (profit) of Rs.30, 000 in the year ended 31st March , 2015.
(iii) Closing stock as on 31st March, 2017 was over valued by Rs.10, 000.
Calculate the value of goodwill.

Q. Bank collected dividend of Rs.$25,000$ on behalf of customer which was not recorded in cash book.
In respect of the above given transaction which of the following treatment is correct for preparation of bank reconciliation statement?
(I) If BRS is prepared without adjusting cash book and the balance as per cash book is starting point then Rs.$25,000$ will be subtracted.
(II) If BRS is prepared with adjusted cash book then Rs.$25,000$ will be debited to the adjusted cash book.
(III) If BRS is prepared without adjusting cash book and the balance as per cash book is starting point then Rs.$25,000$ will be added.
(IV) If BRS is prepared with adjusted cash book the Rs.$25,000$ will be credited to the adjusted cash book.

1. (I) only is correct.
2. (II) only is correct.
3. (III) only is correct.
4. (II) & (III) is correct.

Q.

Under Super Profit Method, Goodwill =

1. Total weighted Profit X Total weights.

2. None of the above

3. No. of years / Super Profit

4. No. of years x Super Profit

Q. Krishna Kulkarni has not kept proper books of accounts prepare the statement of profit or loss for the year ending December 31, 2005 from the following information.

Items	Jan 1, 2005	Dec 31, 2005
Cash in hand	$10,000$	$36,000$
Debtors	$20,000$	$80,000$
Creditors	$10,000$	$46,000$
Bills receivable	$20,000$	$24,000$
Bills payable	$4,000$	$42,000$
Car	------	$80,000$
Stock	$40,000$	$30,000$
Furniture	$8,000$	$48,000$
Investment	$40,000$	$50,000$
Bank Balance	$1,00,000$	$90,000$

The following adjustments were made
(a) Krishna withdrew cash Rs $5,000$ per month for private use.
(b) Depreciation @ $5\%$ on car and furniture @ $10\%$.
(c) Outstanding rent Rs$6,000$.
(d) Fresh capital introduced during the year Rs $30,000$.

Q.

The capital employed as shown by the books of ABC Ltd is Rs 5, 00, 00, 000. And the normal rate of return is 10 %. Goodwill is to be calculated on the basis of 3 years purchase of super profits of the last four years. Profits for the last four years are:

Year Profit/Loss (Rs)

2005 - Rs. 1, 00, 00, 000

2006 - Rs. 1, 22, 50, 000

2007 - Rs. 74, 50, 000

2008 - Rs. 54, 00, 000

Calculate goodwill.

1. Rs 2, 11, 29, 400

2. Rs 3, 31, 74, 700

3. Rs 2, 11, 71, 500

4. Rs 1, 13, 25, 000