TS Grewal Solutions Class 12 Accountancy Volume 1 Chapter 3

In this regard, TS Grewal Class 12 Solutions Chapter 3 proves extremely valuable. The book explains with utmost detail all the crucial concepts that affect the value of goodwill of a particular firm like the location of the business, market situation, the efficiency of management, and others. Further, the solutions will also help the students to understand the mathematical formulas and therefore learn the various methods of valuation adequately.

Here are direct step-by-step explanations for Goodwill: Nature And Valuation. These Goodwill: Nature And Valuation answers for Accountancy are immensely popular among Class 12 Commerce students. Goodwill: Nature And Valuation Solutions can help you do your assignments and study for tests swiftly. TS Grewal's Double Entry Book Keeping Vol.1 has all of the questions and answers. All Double Entry Book Keeping Ts Grewal Vol. I 2024-25 Solutions for Class 12 Commerce Accountancy are 100% correct and prepared by experts.

Goodwill is a company's excellent name or reputation, which is earned by the hard work and honesty of its proprietors. Customers that are satisfied with a company's service will return again and again, and the company will be able to generate greater earnings in the future.

Thus, goodwill is the worth of a company's reputation that allows it to earn larger revenues than other companies in the same industry.

Characteristics of Goodwill

1. It's an intangible asset, for starters: Goodwill is an intangible asset that cannot be seen or felt and thereby, has no physical presence. It comes into the same category as patents, trademarks, copyrights, and other intangible assets.

2.  It is a priceless asset.

3.  It aids in the generation of surplus profits.

4.  Its value is subject to constant fluctuation: While goodwill does not degrade, it's worth is subject to constant changes. It is regularly present as a silent asset in a business along with super-profits (i.e., profits that are higher than average), but it depreciates when earnings fall.

5. It is only valuable at the time the complete company is sold: Goodwill cannot be sold in pieces. It is only possible to sell the business entirely. The sole exception is when the partner is admitted to or retires.

6. It is challenging to put an exact value on goodwill because it's worth fluctuates over time owing to changing circumstances both internal and external to the company.

There are Two Different Types of Goodwill.

1. Purchased Goodwill: Purchased goodwill refers to goodwill for which consideration has been paid, such as when a business is purchased, the excess of the purchase consideration over the net assets, i.e. (Assets – Liabilities). It is written or recorded separately in the records since it is purchased in the form of cash or kind.

2. Self-propelled Inherent goodwill is another name for goodwill: It is an internally created goodwill that results from a variety of factors that a running business possesses and which help it to achieve higher earnings in the future.

Factors Affecting the Goodwill Value

1. Effective management: If a company is handled by experienced and effective management, profits will continue to rise, resulting in a rise in the value of goodwill.

2. Product quality: If a company provides high-quality products, customers will return to buy them again and again, resulting in goodwill and a brand reputation for the company.

3. Business location: A business that is located in a handy or prominent location will attract more clients and hence have more goodwill.

4. Firm longevity: Because an older business is more well-known among its clients, it is more likely to have greater goodwill. When a business has established a solid reputation over time, the number of clients will be higher than when new entrants enter the market. The number of clients a company has is a good measure of its earnings potential.

5. Monopolistic and other Rights: If a company has a monopoly market, profits are guaranteed. It will also have more goodwill if it has special rights such as patents, trademarks, copyrights, or concessions.

6. Other considerations include: 

(i) good labor relations.

(ii) Favorable government legislation 

(iii) Stable political conditions 

(iv) Efforts in research and development

(v) Effective advertising to generate brand recognition 

(vi) Product quality popularity

The importance of valuing goodwill: When the partners' reciprocal rights change, the party who makes a sacrifice must be compensated. Because goodwill is the cornerstone of remuneration, we must calculate it.

Why Should Students Choose TS Grewal Class 12 Solutions Chapter 3?

TS Grewal’s Solutions are a valuable resource for every student who is appearing for the CBSE board examinations. The book critically explains all the topics under the chapter in an extensive way with adequate examples and illustrations. Furthermore, TS Grewal Class 12 Solutions Chapter 3 critically elucidates detail with several mathematical equations and methods of valuations.

Goodwill Is Valued Using the Following Method:

Because goodwill is an intangible asset, determining its value is challenging. When a firm is sold, the value is determined by the mutual agreement reached between the seller and the buyer. There are three common ways for valuing goodwill:

1. average profit method

2. Super profit method

3. Capitalization method

Average Profit Methods

This method has two types which are

Simple Average: Under this method type the goodwill is valued at an agreed no. of years of purchase multiplied by the average profits of past years.

Goodwill = Average profit × No. of year’s Purchase

Weighted Average: Under this method, the goodwill of a firm is calculated by finding the product of the weighted average profit of the year with the total no. of years of purchase. The weighted average profit is used when a firm experiences a trend of increase or decrease in the profit amount.

Goodwill = Average Weighted Profit × No of Year’s Purchase

Super Profit Methods

Under this method, the goodwill of a firm is calculated by multiplying the super profit of the firm and the no. of year’s purchase where super profit is calculated by dividing actual profit by the average profit and subtracting the value of normal profit from it.

Super Profit = (Actual profit/Average Profit) – Normal profit

Where, Normal profit = Total Capital Employed × Normal rate of return/100

Goodwill = Super Profit × No. of years purchase

Few Examples of Chapter 3 Accounts Class 12 TS Grewal Solutions

Solution 1

Solution 1 of TS Grewal Class 12 Accountancy Solution Chapter 3 Goodwill calculates the goodwill of a firm at 3 years purchase for an average of 4 years’ profit (like from 2016 to 2019) of an enterprise.

This solution first calculates the average profit of four years of an enterprise

Average profit = Aggregate profit of previous years/ Total No. of years.

11,000 + 17,000 + 15,000 + 17,000/ 4 = 15000

Then, it multiplies the average profit with no. of year’s purchase

Goodwill = Calculated Average Profit × No. of Year’s purchase

15000 × 3 = 45,000

Solution 2

Ch 3 Goodwill Class 12 Solutions for question 2 calculate goodwill of an enterprise which is valued at 2 years purchase of 3 years’ normal average profit of an enterprise. Suppose, the profit ratio of the enterprise is shared initially at a ratio of 3:2 between two partners Bharat and Bhushan. Later, another partner named Manu joined at the rate of 2/5 the share of total normal profit. (Table will be updated soon)

Average normal profit = Normal profit for last 3 years/3

= 1,80,000/3 = INR 60,000

Goodwill of Firm = Average profit × total no. of years purchase

= 60,000/ 2 = 1,20,000

All these Goodwill Class 12 TS Grewal Solutions are explained in minute detail so that students can get a clear understanding of the equations and have no conceptual deficiency while attempting questions from this chapter in their final examinations.

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