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Questions and Answers
What is the expected profit for the company based on the provided information?
What is the expected profit for the company based on the provided information?
The expected profit is Rs. 48,000.
How is the super profit calculated in this scenario?
How is the super profit calculated in this scenario?
The super profit is calculated as Rs. 12,000, which is the difference between the expected profit and the normal profit or return on capital.
What is the market value of the machinery according to the additional information?
What is the market value of the machinery according to the additional information?
The market value of the machinery is Rs. 8,00,000.
Given the total assets and liabilities, what is the capital employed for the company?
Given the total assets and liabilities, what is the capital employed for the company?
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What formula is typically used to calculate the value of goodwill based on super profits?
What formula is typically used to calculate the value of goodwill based on super profits?
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Study Notes
Valuation of Goodwill
- Wages for machine installation amounted to Rs. 4,000 with total costs of Rs. 79,600.
- Average profit recorded was Rs. 25,200.
- Calculation of goodwill involved determining total profits across several years, accumulating to a final figure of Rs. 3,18,200.
- Super profit calculated as Rs. 12,000, which led to a final goodwill valuation of Rs. 60,000.
- Expected profit projected at Rs. 48,000 with an expected rate of return of 12%.
Financial Status
- Total equity share capital consists of 2,00,000 equity shares at Rs. 10 each, totaling Rs. 20,00,000.
- 10% preference share capital consists of 60,000 preference shares at Rs. 10 each, amounting to Rs. 6,00,000.
- General reserve valued at Rs. 4,00,000, with profit and loss account showing Rs. 3,00,000.
- Total current liabilities registered at Rs. 2,00,000, leading to total liabilities of Rs. 35,00,000.
Asset Valuation
- Current market valuation of land and buildings is Rs. 20,00,000.
- Machinery market value currently stands at Rs. 8,00,000.
- Current assets valued at Rs. 9,00,000.
- Valuation reflects an assessment of the company's total assets at Rs. 37,00,000.
Share Pricing and Profit Analysis
- Market price per equity share is twice the paid-up value for companies with similar business operations and a 16% dividend.
- Profit Before Tax (PBT) for three years calculated as follows:
- 2009-2010 PBT: Rs. 5,00,000 with a weight of 1.
- 2010-2011 PBT: Rs. 5,75,000 with a weight of 2.
- 2011-2012 PBT: Rs. 6,50,000 with a weight of 3.
- Weighted average of profits calculated to assess overall company performance.
Conclusion
- Goodwill is obtained as three years' purchase of super profits based on the established figures.
- Capital employed determined as Rs. 29,00,000 after subtracting total liabilities from total assets and excluding preference share capital.
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Description
This quiz explores the valuation of goodwill, including calculations for expected profit and super profit. It focuses on practical applications and implications of values associated with goodwill in financial accounting. Test your understanding of these critical financial concepts.
