The average net-profit adjusted for valuation of goodwill of the B Ltd. amounted to ₹2,26,045. The average profit (before adjustment) was ₹2,02,000. 6% represented fair commercial return. The average 'tangible' capital e

CS Executive · Company Accounts & Auditing Practices · PYQS · December 2020
The average net-profit adjusted for valuation of goodwill of the B Ltd. amounted to ₹2,26,045. The average profit (before adjustment) was ₹2,02,000. 6% represented fair commercial return. The average 'tangible' capital employed was ₹13,41,600 but upon valuation it was valued at ₹14,40,000. Assuming seven year's purchase of Super profits, find out the value of the Goodwill.

Answer & Explanation:

Valuation of Goodwill Particular Amount ₹ Average profit after Adjustment 226045 Less Normal Profit [14,40,000 x 6 / 100] (86400) Super Profit 139645 Goodwill = Super Profit * 7 years of purchase [139645 * 7] 977515

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