Goodwill

Super Profits are the exces profits over the normal profits that can be earned.

ROCE would be 12.5% on 400000 i.e. 50000

Exces of Avg Profit over normal profits is Super Profits which comes to 10000(60000-50000)

therefore GW wud be 10000*2= Rs.20000.

Thank you Giridhar.

Can you explain me Goodwill and its computation in Accounting?

Thanks in advance.

haa u can find by following.....

super profit =average profits-normnal profit

goodwill =super profit*no.of year.

good will is the value of reputation of a firm w.r.t profits excpeted in future on avg profits.

in every case we value the good will account which is u already studied

3methods r there in cal purpose.

so simply good will is not a ficitious asset.i thought else is u already studied in ur books.its enough

average profit  = 60000

rate of return = 12.5%

capital employed = 400000

rate of return on capital employed = 400000*12.5% = 50000

super profit = 60000-50000 = 10000

goodwill 2 yr purchase of super profit = 10000*2 = 20000

goodwill is the intangible asset of the company. it will increses the status of the compnay to the outer world. 

goodwill can be ascertained be many ways some of them are:

1. on the basis of average profit

2. on the basis of super profit.

3. other basis.....

your question will comes under the super profit method....

superprofit refers to the excess of actual profit over and above the average profit..

now let us solve the problem:

average profit: 12.5% of 400000  = 50000

actual profit = 60000

so the excess is 10000

and the goodwill is 10000x2= 20000

20000 is the goodwill of the company or firm..

Computation of Goodwill is correct in all above (Rs. 20,000).

Goodwill is calculated whenever there is any change in Profit Sharing Ratio(PSR). Becoz due to such change some partners will be in gain and some partner will sacrifice future profits.

So on the basis of estimated future profit Goodwill is calculated and account settlement will be through Partner's Capital/current account.

This Goodwill is only computed but not recorded in books becoz as per AS 10 onlu purchased goodwill can be recorded in the books.

2007-profit RS.50000

08-loss 20000(including loss by fire 30000)

09-profit 70000(including insurance claim rs.18000 nd int on investment nd dividends 8000)

calculate the value f goodwill.........ans is 66,000

@ koustav de:The goodwill is calculated on the basis of x no. of years purchase of avg profits of three years. ( the number with which we multiply the avg. profits is the no. of years of purchase of goodwill, i.e. the number of years the goodwill will help the firm). 

avg. profit for last three years = (50,000 - 20,000 + 70,000)/3 = (30,000 + 70,000)/3 = 1,00,000/3 = 33,333.33 if we assume two years purchase of goodwill, the goodwill will be 2*33,333.33 = 66,666.666. I don't think it will be 66,000

all the losses and income shown in brackets must be included for calculation of avg. profits

year ended 31.3.2010       rs.8,00,000

                       31.3.09           rs.1500000

                         31.3.08          rs.1800000

                        31.3.07           rs.400000(loss)

                       31.3.06              rs130000

Calculate the goodwill on the basis of 3yrs purchase of average profit of the preceeding five years 

my ans is=2298000                   nd bk ans=30,00,000 

If the profit on 31/3/06 is 13,00,000 instead of 1,30,000 the answer given in book would be correct. other wise your answer is correct