Find the goodwill of the firm using capitalization method from the following information:
Total Capital Employed in the firm Rs. 8,00,000
Reasonable Rate of Return 15%
Profits for the year Rs. 12,00,000
-
Solution
Steps to be followed:
(a) Determine the normal rate of return i.e. 15%(b) Find out the average profit of the partnership firm. In this case it is Rs. 12,00,000
(c) Determine the capital employed i.e. 8,00,000
(d) Find out the normal value of the business by dividing average profit by normal rate of return. In this case it would be 12,00,000/15% = 80,00,000
(e) Deduct average capital employed from the normal value of business to arrive at goodwill. Here goodwill will be = 80,00,000 – 8,00,000 = Rs. 72,00,000
Average inventory = Rs 12,000. Closing inventory is Rs. 3,000 more than opening inventory. The value of closing inventory will be
-
Solution
Average inventory = (opening inventory + closing inventory)/2 = 12,000
Or (opening inventory + closing inventory) = 12,000 × 2 = 24,000 ... (1)
Given closing inventory = opening inventory + 3,000
Closing inventory – opening inventory = 3,000 ... (2)
Adding (1) and (2)
2 closing inventory = 27,000
Closing inventory = 27,000/2 = Rs. 13,500
On 1.1.2010 X draws a bill on Y for Rs. 50,000. At maturity, the bill returned dishonoured as Y became insolvent and 40 paise per rupee is recovered from his estate. The amount recovered is:
-
Solution
When a person or party is declared by court as insolvent or bankrupt he is considered to be unable to pay his liabilities. It means, the bills accepted by him will be naturally dishonored. Therefore, when it is known that a person has become insolvent, entry for the dishonor of the bill of exchange should be passed both
in the books of the drawer and acceptor.
Later on something may be received from his estate. When the amount has been received casdh account will be debited and the personal account of the person will be credited.
Here 40 p per rupee has been recovered . thus amount recovered will be 40% of 50,000 = Rs. 20,000
A and B entered into a joint venture and purchased a piece of land for Rs 20,000 and sold it for Rs 60,000 in 2010. Originally A had contributed Rs 12,000 and B Rs 8,000. The profit on venture will be
-
Solution
The venture was entered for purchase and sale of a particular piece of land. So the profit will be ascertained by deducting purchase price from the sale price as there are no other expenses given in the question and the contribution of A and B will be used to determine the profit sharing ratio of the venture.
Thus profit = 60,000 – 20,000 = 40,000
Consider the following for Alpha Co. for the year 2009-10:
Cost of goods available for sale Rs.1,00,000
Total sales Rs. 80,000
Opening inventory of goods Rs. 20,000
Gross profit margin 25%
Closing inventory of goods for the year 2009-10 was
-
Solution
Closing inventory = opening inventory + purchases – cost of goods sold
Cost of goods sold = x (say) = total sales – gross profit = 80,000 – 25% of 80,000
Or x = 80,000 – 20,000 = 60,000
Purchases = cost of goods available for sale – opening inventory = 1,00,000 – 20,000 = 80,000
Thus closing inventory = 20,000 + 80,000 – 60,000 = Rs. 40,000
If sales revenues are Rs. 4,00,000; cost of goods sold is Rs. 3,10,000 and operating expenses are Rs.60,000, the gross profit is
-
Solution
Operating expenses is not considered in calculation of gross profit .
Thus gross profit = sales – cost of goods sold = 4,00,000 – 3,10,000 = Rs. 90,000
Original cost = Rs. 1,26,000; Salvage value = Nil; Useful life = 6 years. Depreciation for the first year under sum of years digits method will be
-
Solution
-
Solution
M/s ABC Brothers, which was registered in the year 2008, has been following Straight Line Method (SLM) of depreciation. In the current year it changed its method from Straight Line to Written Down Value (WDV) Method, since such change would result in the additional depreciation of Rs. 200 lakhs as a result of which the firm would qualify to be declared as a sick industrial unit. The auditor raised objection to this change in the method of depreciation.
The objection of the auditor is justified because
-
Solution
Objection of auditor is justified only in situation given in option (C).
A businessman purchased goods for Rs. 25,00,000 and sold 80% of such goods during the accounting year ended 31st March, 2010. The market value of the remaining goods was Rs. 4,00,000. He valued the closing inventory at cost. He violated the concept of
-
Solution
Conservatism concept is being violated in given case.