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Standard XII

Accountancy

Weighted Average Profits Method

Under average...

Question

Under average profit basis, goodwill is calculated by -

No. of years purchased multiplied with average profits.

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No. of years purchased multiplied with super profits.

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Summation of the discounted value of expected future benefits

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Super profit divided with expected rate of return

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Solution

The correct option is A No. of years purchased multiplied with average profits.
Average Profit Method: Under this method the value of Goodwill is calculated by multiplying the Average Future profit by a certain number of year's purchase.

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Similar questions

Q. Average net profit expected in future by XYZ firm is ₹ 36,000 per year. Average capital employed in the business by the firm is ₹ 2,00,000. The normal rate of return from capital invested in this class of business is 10%. Remuneration of the partners is estimated to be ₹ 6,000 p.a. Calculate the value of goodwill on the basis of two years' purchase of super profit.

Q. The goodwill of a firm is valued at

R s . 1, 35, 000

3

years purchase of super profit. Determine the missing values:
Average Profit

= \frac{3, 60, 000}{3} = R s . 1, 20, 000

Normal Profit

= R s . . . . \times \frac{15}{100} = R s . . . .

Super Profit

=

Average Profit

-

Normal Profit

= R s . 1, 20, 000 - R s . . . . = R s . . .

Goodwill

=

Super Profit

\times

No. of years Purchase.

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.

Q. The average net profit expected in future by

X Y Z

firm is Rs.

36, 000

per year. Average capital employed in the business by the firm is Rs.

2, 00, 000

. The normal rate of return from capital invested in his class of business is

10

. Remuneration of the partners is estimated to be Rs.

6, 000

p.s. Find out the value of goodwill on the basis of two years purchase of super profit.

Q. The profits and losses for the last years are : 2001-02 Losses Rs.8,000; 2002-03 Losses Rs.4,500; 2003-04 Profits Rs.1,00,000 & 2004-05 Profits Rs.74,000.The average capital employed in the business is Rs.2,40,000. The rate of return expected from capital invested as 10%. The remuneration of partners is estimated to be Rs.1,000 per month. Calculate the value of goodwill on the basis of two years' purchase of super profits base on the average of four years.

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Under average profit basis, goodwill is calculated by -

The correct option is A No. of years purchased multiplied with average profits.Average Profit Method: Under this method the value of Goodwill is calculated by multiplying the Average Future profit by a certain number of year's purchase.

The correct option is A No. of years purchased multiplied with average profits.
Average Profit Method: Under this method the value of Goodwill is calculated by multiplying the Average Future profit by a certain number of year's purchase.