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Accounting for Companies – II

notes (a) Directors’ fees of ` 20,000 charged against such profits will not be payable by Ranu
Ltd. whose existing board can easily cope with additional administrative work at
present fees payable to them.
(b) Rent at ` 30,000 p.a. which has been paid by Mr. Ram will not be a charge in future,
since Ranu Ltd. owns its own premises and can supply the accommodation necessary
for the staff and equipment of Mr. Ram.
The value of net tangible assets of Mr. Ram’s business at the proposed date of sale was
` 30,00,000 and it was considered that a reasonable return on capital invested for the
commodity was 10%. The profit of Mr. Ram would, in no way, be affected by the sale of
his business to the purchasing company and goodwill existed, and was to be paid on the
basis that Mr. Ram’s business is a continuing unit. Compute the value of goodwill by the
capitalisation of the expected future profit and super profit.

13. During the last three years, the profit of a company was ` 50,000, ` 48,000 and ` 52,000
respectively. The Average Capital employed is ` 3,00,000 and in a similar business, return
on capital employed is 10%. The present value of ` 0.367209 annuity for three years @ 5%
p.a. return is ` 1. Find out the goodwill by annuity method based on super profit.

answers: self assessment

1. Fictitious and Intangible 2. Zero
3. Super Profit 4. Four
5. Ownership 6. Goodwill
7. False 8. True
9. True 10. True
11. False 12. True

13. (b) ` 1,20,000 14. (c) 10%
15. (a) 3 years
11.9 further readings

Books B B Dam and H C Gautam, Corporate Accounting. Capital Publishing.
Das. K R and others, Corporate Accounting, LBS Publication.
Sehgal, Dr. A and Sehgal, Dr. D, Advanced Accounting & Corporate Accounting,

Taxman Publications.

Online links http://www.caclubindia.com/articles/valuation-of-goodwill-11681.asp#.
UO6n7uRfFv4

http://accountlearning.blogspot.in/2011/10/concept-and-meaning-of-
goodwill-and.html
http://studytesttime.com/about-goodwill/10-methods-of-valuation-of-
goodwill
http://www.kkhsou.in/main/EVidya2/commerce/valuation_goodwill.html
http://www.xamidea.in/subject.aspx?q=5&c=88&t=10000584&info=title

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