Date : 06-04-2025 STD 12 Commerce Accountancy Total Marks : 30

ACCOUNTS - Goodwill

* MCQ [4]

1. You are required to answer the following

1.
X and Y are sharing profits in the ratio of 5:4. They admit Z as a new
partner for 1/6th share in the profits. New ratio agreed upon is 3:2:1. Z
brings Rs.2,00,000 as capital but unable to bring premium for goodwill
in cash.
At the time of admission of Z, Goodwill to be valued by Capitalization of
average profit of last 3 years.
At the year ending 31st Profit Rs.39,000 (including abnormal loss
March 2019 of Rs.9,000)
At the year ending 31st Profit Rs.83,000 (including abnormal gain
March 2020 of Rs.8,000)
At the year ending 31st
Profit Rs.72,000
March 2021
On 1st April 2021, the firm had assets of Rs.8,00,000, Creditors
Rs.3,60,000, General Reserve Rs.40,000, Partners capital Accounts
Balance Rs.4,00,000.
Normal rate of return expected 13% from this type of business.
(A) 62,333
(B) 62,000
(C) 63,000
(D) 65,000
2. Capitalised value of average profit:
(A) 65,000
(B) 6,50,000
(C) 5,00,000
(D) 8,450
3. Net Assets will be:
(A) 4,40,000
(B) 4,00,000
(C) Nil

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 (D) 8,00,000
4. Z's share of premium for goodwill:
(A) 40,000
(B) 30,000
(C) 20,000
(D) 10,000
Ans. : 1 - D
2-C
3-A
4-D

* questions of 3 marks each. [6]

2. Form the following particulars, calculate value of goodwill of a firm by applying

Capitalisation of Average Profit Method:
i. Profits of last five consecutive years ending 31st March are: 2018–
₹ 54,000; 2017–₹ 42,000; 2016–₹ 39,000; 2015–₹ 67,000 and 2014–₹ 59,000.
ii. Capitalisation rate 20%.
iii. Net assets of the firm ₹ 2,00,000.
Ans. : Goodwill = Capitalised Value of Average Profit - Net Assets (Capital Employed)
Average Profit
54,000+42,000+39,000+67,000+59,000
=
5

2,61,000
=
5
= ₹ 52, 200

Capitalised Value of Average Profit = Average Profit ×

100

Normal Rate of Return

100
= 52, 200 ×
20
= ₹ 2, 61, 000
∴ Goodwill = 2,61,000 - 2,00,000
= ₹ 61,000
3. A and B are equal partners. They decide to admit C for 1
rd share. For the
3

purpose of admission of C, goodwill of the firm is to be valued at four years'

purchase of super profit. Average capital employed in the firm is ₹ 1,50,000.
Normal rate of return may be taken as 15% p.a. Average profit of the firm is
₹ 40,000. Calculate value of goodwill.
Ans. : Goodwill = Super Profit × Number of Years' purchase
Normal Profit = Capital Employed × Normal Rate of Return

100

= 1, 50, 000 ×
100
15
= ₹ 22, 500
Super Profit = Average Maintainable Profit - Normal Profit
= 40,000 - 22,500 = ₹ 17,500
Number of Years' Purchase = 4
∴ Goodwill = 17,500 × 4 = ₹ 70,000

* questions of 4 marks each. [8]

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4. X and Y are partners sharing profits and losses in the ratio of 3 : 2. They admit Z
into partnership for 1/4th share in goodwill. Z brings in his share of goodwill in
cash. Goodwill for this purpose is to be calculated at two years' purchase of the
average normal profit of past three years. Profits of the last three years ended
31st March, were:
2016 – Profit ₹ 50,000 (including profit on sale of assets ₹ 5,000). 2017 – Loss
₹ 20,000 (includes loss by fire ₹ 30,000) 2018 – Profit ₹ 70,000 (including
insurance claim received ₹ 18,000 and interest on investments and Dividend
received ₹ 8,000). Calculate value of goodwill. Also, calculate goodwill brought in
by Z.
Ans. : Goodwill = Normal Average Profit × Number of years' purchase

Normal Average Profit

Normal Profit for last 3 years
=
3

99,000
=
3
= ₹ 33, 000
Number of years’ purchase = 2
∴ Goodwill = 33,000 × 2 = ₹ 66,000

Z's share of Goodwill = Goodwill of the firm × Z's share of Profit

1
= 66, 000 ×
4
= ₹ 16, 500

5. Manbir and Nimrat are partners and they admit Anahat into partnership. It was
agreed to value goodwill at three years' purchase on Weighted Average Profit
Method taking profits of last five years. Weights assigned to each year as 1, 2, 3,
4 and 5 respectively to profit for the year ended 31st March, 2014 to 2018. The
profit for these years were: ₹ 70,000, ₹ 1,40,000, ₹ 1,00,000, ₹ 1,60,000 and
₹ 1,65,000 respectively.
Scrutiny of books of account revealed following information:
i. There was an abnormal loss of ₹ 20,000 in the year ended 31st March,
2014.
ii. There was an abnormal gain (profit) of ₹ 30,000 in the year ended 31st
March, 2015.
iii. Closing Stock as on 31st March, 2017 was overvalued by ₹ 10,000.
Calculate the value of goodwill.
Ans. : Goodwill = weighted Average Profit × No. of years' purchase
= 1,39,000 × 3 = ₹ 4,17,000
Working Notes:
WN: 1 Calculation of Normal Profits:

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 WN: 2 Calculations of Weighted Average Profits:

Total of Profit Product

Weighted Average Profit =
Total of Weights

20,85,000
=
15
= ₹ 1, 39, 000

* questions of 6 marks each. [12]

6. X and Y are partners in a firm. They admit Z into partnership for equal share. It
was agreed that goodwill will be valued at three years' purchase of average
profit of last five years. Profits for the last five years were:
Year 31st March, 31st March, 31st March, 31st March, 31st March,
Ended 2014 2015 2016 2017 2018
Profit (₹) 90,000 (Loss) 1,60,000 1,50,000 65,000 1,77,000
Books of Account of the firm revealed that:
i. The firm had gain (profit) of ₹ 50,000 from sale of machinery sold in the
year ended 31st March, 2015. The gain (profit) was credited in Profit and
Loss Account.
ii. There was an abnormal loss of ₹ 20,000 incurred in the year ended 31st
March, 2016 because of a machine becoming obsolete in accident.
iii. Overhauling cost of second hand machinery purchased on 1st July, 2016
amounting to ₹ 1,00,000 was debited to Repairs Account. Depreciation is

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 charged @ 20% p.a. on Written Down Value Method.
Calculate the value of goodwill.
Ans. : Goodwill = Average Profit × No. of years' purchase
= 1,00,000 × 3 = ₹ 3,00,000
Working Notes:
WN: 1 Calculation of Normal Profits

*Adjustment Amount
Overhauling cost of second hand machinery wrongly accounted
as expense instead of capital expenditure. Profit to be increase 1,00,000
by ₹ 1,00,000
Depreciation to be debited from P&L A/c (1, 00, 000 ×
20

100
×
9

12
) (15,000)
Amount to be added back 85,000
WN: 2 Calculation of Average Profit
Total Profit for past given years
Average Profit =
Number of Years

5,00,000
=
5
= ₹ 1, 00, 000

7. Calculate the goodwill of a firm on the basis of three years' purchase of the
weighted average profit of the last four years. The appropriate weights to be
used and profits are:
Year 2014-15 2015-16 2016-17 2017-18
Profit (₹) 1,01,000 1,24,000 1,00,000 1,40,000
Weight 1 2 3 4
On a scrutiny of the accounts, the following matters are revealed:
i. On 1st December, 2016, a major repair was made in respect of the plant
incurring ₹ 30,000 which was charged to revenue. The said sum is
agreed to be capitalised for goodwill calculation subject to adjustment of
depreciation of 10% p.a. on reducing balance method.
ii. The closing stock for the year 2015-16 was overvalued by ₹ 12,000.
 iii. To cover management cost, an annual charge of ₹ 24,000 should be
made for the purpose of goodwill valuation.
iv. In 2015-16, a machine having a book value of ₹ 10,000 was sold for ₹
11,000 but the proceeds were wrongly credited to Profit and Loss
Account. No effect has been given to rectify the same. Depreciation is
charged on machine @ 10% p.a. on reducing balance method.
Ans. :

Working Notes:
Goodwill = Weighted Average Profit × Number of years' purchase
Total of Product
Weighted Average Profit =
Total of Weights

77,000+1,56,000+3,53,700+4,55,640
=
10
= ₹ 1, 04, 234

Goodwill = 1, 04, 234 × 3 = ₹ 3, 12, 702

Note 1: Depreciation on ₹ 30,000 machinery is charged for only 4 months in the
year 2016-17.
Note 2: Sale proceeds wrongly credited in 2015-16 have been deducted after
adjusting for profit of ₹ 1,000. No depreciation is charged, since date of sale is not
given (assumed that the machinery is sold at the end of the year).
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