Page 255 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

notes Less: Sundry Liabilities:
Loans 6,00,000

Creditors 3,75,000
Provision for Tax
3,00,000 12,75,000
Capital Employed at the end of the year 24,89,500
(B) normal rate of return (assumed average rate of dividend):

+
+
+
+
10 10 10 15 15 60
= = = 12%
5 5
(C) Normal Profit on Capital Employed:
×
= CapitalEmployed NormalRateof Return
100
×
24,89,500 12
= = ` 2,98,740
100
(D) Future Maintainable Profits:

` 5, 40,000 + ` 5,70,000 + ` 6,00,000 + ` 6, 40,000 + ` 7,00,000
=
5
` 30,50,000
= = ` 6,10,000 – 50% tax
5
= ` 3,05,000

(E) Super Profits:
Future Maintainable Profits ` 3,05,000
Less: Normal Profits ` 2,98,740
Super Profit ` 06,260

6,260×100
Goodwill = = ` 52,167.
12
Illustration 7 (Capitalisation of Future Maintainable Profits)
The Balance Sheet of Mr. A on 31 December, 2011 was as under:
st
liabilities ` assets `
Capital 2,50,000 Land and Buildings 1,80,000
Creditors 80,000 Machinery 1,10,000

Bills Payable 20,000 Furnitures 2,000
Stock 8,000
Cash at Bank 50,000
3,50,000 3,50,000
The profits of the business for the five years ending 31 December 2011 are:
st
(I) year ` 40,000, (II) year ` 42,000, (III) year ` 45,000, (IV) year ` 50,000, (V) year ` 53,000.

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