Paid up value per

share
Expected rate of relun x
11. Yield value pershare Normal rale of return
Ans:
True 1, 2, 5, 6. 7,
False: 3, 4, 8, 9, 10
Exercises

(4) Shon Answer Problems:

Goodwill is to be valued at 3 years
for the last five years of the firm
purchase of five years' average profits. The profits
were:
1994-Rs 2.400: 1995 Rs. 3,000;
-

1996- Rs. 3.400;

1997- Rs. 3.200;
1998-Rs. 4.000.
Calculate the amount of
goodwill.
/Madras, B.Com.(CS) (ICE) Oct. 2009
2. Ans: Average profit Rs.
Calculate the amount of 3,200; Goodwill Rs. 9,600|
purchase of the last four goodwill in the following case,
years' average profits. The se, on the basis of three years
profits and losses for tneyeas
four years are:

Year
1995 Rs
1996 10,000
1997 16,000
1998 6.000 (loss)
12,000
IMadras, B.Com
(CS) Ap. 2008;.April 2007 Figure

IDelhi, S.S.C. 1982 pred

Ans:Goodwill - Rs. 24,0

 aleulat t podw ill in the lvllownp CaNe 8.82
i will istbe calculatod at one year
1the olit l te iust year
wa RN
purcae ul tlhe last 3 years'
averape profit
ea and the third year one ml hall
,00, secomd ear twice the
profit of the first
tiev the
prolit ol the second
year

Vijay &Co has decided to buy the bsiness Ans: Goodwill Rs.
of Mr Sekar who has 12,0001
the last three years as Rs. 12,000, carned profits in
Rs. 10,000 and R«. 11,000. Mr. Sekar was
taking care of management of the
business. I he had worked himself
have earned income of Rs. 2,000 a ehewhere, he would
p C'aluclate the value of
cars purchase of avernge profit of last 3 goodwill on the basisof
ycars
Ans:Rs. 18,000 i.., 9000 21
From the following data relating to P'adma&
C'o,calcualte the goodwill on the
basis of hree years purchase of the avenagee profits
i) Protits for the years ending 2000, 2001 and 2002 were Rs. 80,00),Rs
90,000 and Rs. 1,00,000.
i) A non- recurring income ol Rs. I5.000) is ineluded in the profits of 2000
ii) The closing stock for the year 2001 was over valucd by Rs. 30,00
Ans: Coodwill: Rs. 2,55,000 ( i.e., 85,000 3)
. Caleulate goodwill, ifit is to be caluclted at 3 years' purehase of the super prof
().
The normal rate of carning
The firm started business with a cpaital of Rs. 4,00,.000).
carned Rs. 74,000 as profit during the year
in this class ofbusiness is 15%. The firm
Goodwill: Rs. 42,000(i.e., 60,000= 14,000 3)
74,000-
Ans: 4.40.000
liabilities ofthe firm is Rs
7. Total assets of a firm is Rs. 8.40.000. The
of
12,"o, The firm earned a profit
Normal rate ofreturn in this class ofbusiness is
of super
be valucd at 2 ycars' purchase
goodwill. if it is
to
Calculate
Rs. 64.000.
prolit 64,000-50,000 14,000 2
Goodwill Rs. 28,000(i.e.,
Ans: as follows:
the last three ycars
firm carned net prolits during
8. A partnership 1988 -

Rs. 23.000.
Rs. 20.000: been
Rs. 17,000; 1987- mentioned period has
1986 the above
investment in the
firm throughout
involved. 15°%
is
considered
a
fairreturn
tobe
The capital to the risk purchase of
regard the basis of 2 years'
R s . 8 0 . 0 0 0 . IHaving on
value gowdswill
of
Calculate the m e n t i o n c d three
years.
capital. the above IDelhi Board S.S.C
on the during
earned

average
super profits Rs. I6,000
Goodwill
Ans:
investment
an
profit on
Rs. 50,000 as
average
the basis ofa
business earning business of X° on

on a the super profit.

is carrying in buying purchase ofthe
9. X *Y' is
interested
to be 4 due to a new
3.00,000. G o o d u i l l is
agreed 5,000 per ycar
of Rs. of 10%. by Rs.
n o r m a l rate ofreturn future. expense
may go up
that in payable
to X". Goodwill
-
Rs. 60,000
expected
It is the goodwill JAns:
Compute
local tax.
 Corporate Acco
given.
S.83
information is
I . 5 0 . 0 0 0 .

following
Rs
The
10 employed
10%
Capital
(a)
ofprofit Rs. 16.900 4th
3rdyear
rate
Normal

years
:
15.400:3
(b)
forfive
ycar:
Rs. yea
Netprofit 2nd
(c) 14.400.

Rs. 17.900
profit.
Istyear 5thyear
Rs.
of super
5 yearsadrus, BCS (SYABNov. 2005;BCS (ICE) Oct. 20
purcahse

Rs 17.400
as per BCS
goodwill
Calculate
April
2 0 0 | | M a d r a s ,

Ans: Rs. 7,0

/Thinvalluonar
B Com,
The normal
rate of
Is Rs.
5,00,000.

wewre : 24 %. 26%
retum is
employed
in a company actual r e t u r n s wew
28% and
The capital
the
years is taken at .
11.
During
the lastfour
of the company
the chase of
20%. dwill
goodwill of
30% on
capital. The normal profit.
average
super
previous 4 ycars'
Find the goodwill IMadras, B.Com (old) Oct. 200
Ans Rs. 1,40,0001
BC fim
tim are I.08.000 per
are Rs. 1.08.000p
in the future of ABC year
net profits expected e firm.
firm is Rs. 6,00.000. The rae
12 The average
employed in the
business by the
The average capital business is 10%. Tha
invested in this class of
of interest expected from capital be Rs. 18,000 per annum
estimated to
remuneration ofthe partners is of super profits
on the basis of two years purchase
Findout the value ofgoodwil
Ans: Goodwill - Rs. 60,000

13. A fim earns a profit of Rs. 40.000 and has invested capital amounting to Rs.
3.00.000. In the same class of business. normal rate of carning is 10%. Calculate
goodwill according ot capitalisation method.
Ans: Godwill: Rs. 1,00,000
(i.e., Rs. 4.00,000 Rs. 3,00,000
14. The net profits of a company after providing for taxation for the past five years are
Rs. 40,000: Rs. 42,000: Rs. 45.000:
Rs. 46.000 and Rs. 47,000.
The capital employed in the business is Rs. 4,00,000 on which a reasonable rate or
return of 10% is
expected.
Calculate the value of
goodwill of the business.
Madras, B.A. Corp. March 1991
Ans: Goodwill - Rs. 40.000;
15. From the data Capitalised value of business : Rs. 4,40,000
given below calculate the
method: goodwill of the company by the isation
(a) Normal rate
caplta
of return applicable to the
company 10%. class af husiness carried on D
(b) Adjusted average profits of the
(c) Net asset preceding 5 years Rs. 30.000.
employed in the company Rs.
2.00,000.
19977
Madras, M.Com, Mar
Ans: Goodwill- Rs. 1,00,000
Capitalised value of business : Rs. 3,00,00%
 1u S l a r e s
8.84
6. The average profits of B Lid. for the 1ast 4
cmpioyed in the business is vears are Rs. 27,500. apital
Rs. 2.00,000. Fair ratc Averag
goodwill under annuity method alter of rcturn is 10%.
Calculapeee
for 4 years a 10% as Rs.2.50 taking present valuc of an annuity oI
O
Ans: Goodwill Rs. 18,750; Super
17. Tom the
tolowing profit Rs. 7,500j
method:
particulars. compute the valuc per equity share under Net assets
a

Total assets at market Rs.

value 49.80.000
Total Outside Liabilities
19.00.000
2,00.000 Equity shares of Rs. 10 cach 20,00,000
IMudras, B.Com.(PZ3A) Ap. 2008/
Ans: Value per equity share: Rs. 15.40 (i.e., 30,80,000/
18.
2,00,000)
Compute the value of an cquity share under break-up value method with
folowing data assuming prference shares have no priority as to capital andthe nelP P
dividend
Rs.
6% Prference shares of Rs. 10 cach fully paid 2.00,000
Equity shares of Rs. 120 each fully paid 3,00,000
Net assets available to sharehoders 4,89,500
Ans: Value per equity share of Rs. 117.48

i.e., 4,89.500 2.500

like
Hint: As the prference shareholders have no priority, they are treated
cquity shares.
method from thefollowing
19. Ascertain the value of an equity sharc under net worth
to the payment of capital only:
assuming prference shares have priority
as
data
Rs.
6.00.000
10% prefcrence shares of Rs. 10
cach fully paid
8.00.000
Equity shares of Rs. 10 each fully paid
shareholders 28.00,000
Net assets availableto 27.50
Ans Value per equity share: Rs.
(22,00,000/ 80,000 shares)]
below:
shares capital as given
XYZ Co. Lid. has equity Rs
20 3.00.000
each fully paid up
30.000 Equity shares of Rs. 10 S0,000
10 cach. Rs. 8 paid up
10.000 Equity
shares pf Rs. Sharcholders
4.80,000
available to Equity
assets assets method.
Net shares under net
of both the 5,00,000/40,000)
the value Rs. 12.50(i.e.,
Fully paid :
Determine
share:
Value per Rs. 10.50(i.e., 12.50-2)
Ans: Partly paid:
20,000 (10,000 x 2) to
net

uncalled capital of Rs.

notional
alls (i.e..
Hint: Add shareholders.

availahle to equity
assets
 8o
paid up.CCount
Its ie
ko
8.85 25o mi
ls sharcs of Rs.10,
divilend at te

21
SKKI Id.
declared

shares are quoted

in the
Rs. 10,
market at
You are requestcd
alculate the
normal rate
of return

Ans: NRR 20% i.e. 2

10 100
Hint: Dividendpershare 100
258: Rs.2
balance sheet of Sun
Ld. as on 31-12-98
22 The following is the
Rs Assets
Liabilities
Goodwill Rs
50.000 Equity Shares

of Rs. 10 cach Machinery 40,000

fully paid 5.00.000 Land 2,00,000
Profit and Loss Alc 1,10,000 | Investment .50,00
Sundry Creditors 40.000 Stock 60,000
Bills payable 10.000 Debtors 1.00,000
Cash at Bank 80,000
Preliminary Expenses 20,000
10,000
6.60.000
From the above 6.60,000
information.you asked
are
share of the
company in Net asset method.
to ascertain the value of each
equity
IMadras, B.C.S. (ICE) Oct.
23
Hint: Goodwill is
The Balance
assumed to be worth theAns: Value of Equity share Rs.200112
Sheet of 7 Ltd. as amount given.
on
31-12-97.
Liabilities
20.000 Equity Sharcs Rs.
Assets
1.000 9%Pref. Shares 2.00.000 Goodwill Rs
(Rs. 100 each) Fixed Assets 30,000
Provision for taxation 1.00.000 Investment 3.50,000
10% Debentures
2,00,000 6% Govt.
Creditors loan
0,000 Current Assets 45,000
60.000 Selling Commission 2,00,000
on shares

Discount on issue of 10,000

debentures
Find the
value of an 6.50.000 15,000

equity share by 6,50,000

Networth method.
adras, B.C.s. (ICE)
Oct. 2001
 8.86
Ans Value
Goodwill is assumed to of Equity share: Rs. 8.75
rain the expected Rate of be worth the
Return from the given figure.
paticulars given below
80,000 Fquity shares of Rs. 10 each fiully paid Rs
Fpected profit per year belore ta 800000
Ratc of Tax 5.20000
Transfer to general reserve
every year
50%
Prefernce share dividend 20P% pf profi
400)
Ans: E.R.R: 21°%; Profit avaiable
for equity shareholders: Rs. 1,68,00
(i.e., 5,20.000 2,60,000 52.000 40,000)
25 the
Compute yield value of the equity share the basis of dividend yield from the
on
infonnation given below:

Rs
Average profit after tax 17,000
Prference Share Dividend 5.400
Transfer to general reserve I0%
9.000 Equity sharesof Rs. 10 cach fully paid 90.000
Normal rate of dividend 9%

Ans Expected rate of dividend: 11% i.e., {90,000

9,900 100

Yield value per share : RS. 12.22

information given below

share from the
26. Caleualte the yicld value per
10 cach fully paid
40.000 EquityShares of Rs.
Normal rate ofreturn: 8%
12%
Expected rate ofreturn: Yield value per share:
Rs. 15]
Ans is a
at 480. Y Ltd. which
Rs.
and is quoted
share of Rs. 60 should be the
value ofthe share
earnings per 48. What
27. X Ltd. has share of Rs.
earnings per
similar fim has
a
480
ofY Ltd.? 88:
Ltd.:
Ans:PE ratio of X
Itd. 48 x 8= Rs. 38
of Y
Value ofsahres
 the fai.

Icquircd
to
ascertain
value of
are
8.87 you
information,

tollowing
the
28
From Rs
cach share
paid 10,00,000
10 cach liully
shares ofRs. 25,10,000
1,00, 000 1quity Fquity
Shareholders

Net assets
availahle to to 90%
Expected rate of
Return 10%
Return Intrinsic value Rs
Normal rate of Ans
ield value: Rs. 90. Fair value Rs. 57.5
25.10
(B) Other Exercises

Method
L Average Profit
busincss tor Rs. 2,40,000. Its profits far
Madhan& (o. decided to purchasea 1996- Rs. 75,000: 1997- Rs. 72.(000
last four yearswere 1995 Rs.
60,000; and
1998 Rs 69,000. The owner of the business was personally managing iit
A manager to replace him has to be paid Rs. 9,000 p.a.
Calculate the valueofgoodwillifit is valued on the basis of three years' purchase of
the average net profit for the last four years.
IMaduari, B.Com., adapted
Ans: Goodwill Rs. 1.80,000
-

2 The following particulars are available in respect of the business carried on by

Bal Thakrey Ltd
(a) Profit carned:1996- Rs. 50.000: 1997- Rs. 48.000; and 1998- Rs. 52.000.
b) Profit of 1997 is reduced
by Rs. 5,000 due to stock destroyed fire and
of 1996 included a by profr
(c) Profit of 1998 include Rs.
non-recurring income of Rs. 3,000.
2.000 income on
(d) The stock is not investment
insured and it is
The insurance thought prudent to insure the stock in future
(e) Fair
premium is estimated at
Rs. 500 p.a.
remuneration to the
Rs. 10.000 p.a. proprietor (not taken in the calculation
You are
of profíts) i
required to calculate the
of
average profits of the last value of goodwill on the basis of 2
three years
ycars. purchase
B.Com., B.Com (CS) Nov. Madras, B.Com(CS)
Ans: Goodwi- 2007; 1
M.Comn, Ap 2005 (SY4B) 4p 2007
A Rs. 79,000; Future April 2003: B.Com, Sep. 199)
purchased the business 'B' maintainable
Rs
80,000. of profit Rs. 39,500
l t was Rs86.0002d
ascertained that, Rs.84.000
on
1.1.98. The
prolits ot the
-

In
1997, respectively for the years 1995. business Werc
during 1996, there
there
dccided to insure was loss
due to fire was a 1996 and
199
wAS against risk
of Rs.
2,000, non-recurring
income of
risk being not Rs. .0 0.
will Cmployed at a salary of Rs. fire in future at
of the
replace the 1,000 per an
annual premium of insurcd.
The
goodwill manager of the nuonth betore Rs. 500.A
You are is
agreed to be 2 present business who is
required to value of years purchase of purchasing
the
Rs. 750business.
He
the geil
elting per month
goodwill of the average proin
rofit of the last
business. 3 years
Ans: Goodwill