Page 259 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

notes Net profit for four years is ` 30,000, ` 40,000, ` 50,000 and ` 60,000. The profits include
non-recurring profit on an average basis of ` 3,000.
Average capital employed ` 3,00,000, Normal Rate of Return 10%, Present Value of Annuity
of ` 1 for four years at 10% is ` 2.5.
Solution

Future Maintainable Profit:

`
`
`
Average Profits = ` 30,000 + 40,000 + 50,000 + 60,000
4
= ` 1,80,000
4
= ` 45,000
Less: Non-recurring Profit 3,000
Future Maintainable Profits
Normal Profits: ` 42,000
×
AverageCapitalEmployed NormalRateof Return
=
100
` 3,00,000 × 10
= = ` 30,000
10
Super Profit:
Future Maintainable Profits ` 42,000
Less: Normal Profits ` 30,000
Super Profits ` 12,000

value of goodwill:
(a) As per Annuity Method-
Present value of annuity of ` 1 for four years at 10% is ` 2.5
` 12,000×2.5 = ` 30,000
(b) As per 4 years purchase of Super Profit
` 12,000 ×4 = ` 48,000
(c) As per Capitalisation of Super Profit Method:

×
SuperProfit 10
=
NormalRateof Return
12,000 × 100
= = ` 120,000
10

Task Discuss the methods of valuation of goodwill.

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