Class 12 Chapter 3 - Goodwill Nature and Valuation Accountancy TS Grewal Solutions on Vedantu
FAQs on TS Grewal Class 12 Accountancy Chapter 3 Solutions
1. What are the Important Topics Discussed in TS Grewal Class 12 Chapter 3?
The TS Grewal Class 12 Accountancy Solutions Chapter 3 Goodwill extensively elucidates on critical topics such as factors affecting the value of goodwill, what are the need for evaluating the goodwill of a firm, premium on goodwill, the different methods of evaluating goodwill, average profit method, super profit method, capitalization method and concept of the hidden goodwill.
Apart from this, there are several important subtopics which are also dealt in details like change in profit sharing ratio among existing firms, an amalgamation of partnership, the addition of new partners, and retirement of a partner, treatment of goodwill and determining, sacrificing and gaining ratio.
2. What are the Various Methods of Evaluating Goodwill Discussed in Class 12 Goodwill TS Grewal Solutions?
There are essentially three methods by which the goodwill of a firm can be calculated. These are:
Average profit method
Super Profit Method
Capitalization methods
The Average profit method again has two distinctive processes which are Simple average method and Weighted Average method. Essentially under an average profit method, the goodwill is calculated by finding out the product of average profit or weighted average profit with the number of year’s purchase.
Under the super profit method, the value of the goodwill is found by multiplying super profit with the no. of years purchase. Lastly, under the Capitalization method, Goodwill is calculated by subtracting the actual capital employed from the capitalized average profit.
3. What are the Factors Which Affect the Goodwill of a Firm?
The goodwill of the firm is affected by several factors like:
- Nature of Business and Location of Business: Any firm which sells a good quality product and is located in the main market tends to secure more profit.
- Owner’s Reputation: This is an important parameter that qualifies the goodwill. A trustworthy and honest owner can attract new and more customers and generate greater profit.
- Efficient Management: An efficient management ensures increased productivity of a firm as well as regulates the cost-efficiency.
- Market Situation: If any organization enjoys a monopoly, it tends to generate more profit than those which have a greater number of competitions.
4. What are the two approaches to valuing goodwill?
Here are the two approaches for valuing goodwill:
(i) Profit Average Goodwill Valuation Methodology The average profit approach values goodwill by multiplying the firm's simple average or weighted average earnings by the number of years since purchase.
Average Profit = Total Profit (after modifications) / Number of Years Goodwill = Average Profit multiplied by the number of years from the purchase.
(ii) Capitalization of Super Profit Method for Goodwill Valuation The capitalized value of super-profits is used in this technique to calculate goodwill.
5. What are the factors that have an impact on the value of goodwill?
The factors are:
Nature of the business location
Nature of business
Location efficiency of management market conditions specific advantages such as low rates and guaranteed electricity supply, long-term contacts for material supply, well-known collaborators, patents, trademarks, import licenses, and so on, enjoy higher goodwill value