Question 44 of 45
Q.From the following information, calculate the value of Goodwill under Annuity method.
(i) Average profit ₹ 24,000
(ii) Normal profit ₹ 14,000
(iii) Normal rate of return 15%
(iv) Years of purchase of goodwill : 5
Present value of ₹ 1 for 5 years at 15% per annum as per the Annuity table is ₹ 3.352.
Present value of ₹ 1 for 5 years at 15% per annum as per the Annuity table is ₹ 3.352.
Puducherry TnboardTamil Nadu HSC (DGE) Commerce Board 2026Subjective· 3mImportance★★★★★
98% · 44/45 Questions
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Start your 14-day free trial to unlock the full solution →Annuity method: Goodwill = Super profit × PV annuity factor = 10,000 × 3.352 = ₹33,520.
Concept (TN HSC Class-12 Accountancy — Goodwill): The annuity method values goodwill as the present value of the super profits expected over the years of purchase, using the annuity table factor. This recognises that money to be received in future is worth less today.
Step 1 — Super profit:
Super profit = Average profit − Normal profit = 24,000 − 14,000 = ₹10,000.
Step 2 — Goodwill (annuity method):
Goodwill = Super profit × Present value of annuity of ₹1 for the years of purchase.
| Item | ₹ |
|---|---|
| Average profit | 24,000 |
| Less: Normal profit | 14,000 |
| Super profit | 10,000 |
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