Page 220 - Corporate Finance PDF Final new link

220 Corporate Finance BRILLIANT’S

Calculation of Adjusted Profit

Particular 2012 (`) 2013 (`) 2014 (`) 2015 (`)
Profit (as given) 20,200 24,800 20,000 30,000
Less: Management Cost 4,800 4,800 4,800 4,800
15,400 20,000 15,200 25,200
Less: Overvaluation of closing stock – 2,400 – –
Add: Overvaluation of opening stock (Note 1) – – 2,400 –
15,400 17,600, 17,600 25,200
Add: Capitalization of repairs – – 6,000 –
15,400 17,600 23,600 25,200
Less: Depreciation (Note 2) – – 200 580
15,400 17,600 23,400 24,620

Calculation of Average Profit

Profit (`)
Year NPP Weights Products (`)
2012 15,400 1 15,400
2013 17,600 2 35,200
2014 23,400 3 70,200
2015 24,620 4 98,480
10 2,19,280

Weighted Average Profit = ` 2,19,280/10 = ` 21,928
Goodwill = 3 year's purchase of weighted average profit = ` 21,928 × 3 = ` 65,784.
Note:
(1) Closing stock of 2013 becomes the opening stock of 2014
(2) Depreciation of 2014 = 10% of ` 6,000 for 4 months = ` 200.
2015 = 10% of (` 6,000 - ` 200) = ` 580.

SUPER PROFIT METHOD / gwna àm°{’$Q> {d{Y

Illustration 3.1.12
The following particulars are available in respect of the business carried on by Ellen.
EbZ Ûmam g§Mm{bV ì¶mnma Ho$ g§~§Y ‘| {ZåZ {ddaU CnbãY h¡&
(i) Capital employed - ` 50,000. / à¶w³V H¡${nQ>b < 50000
(ii) Trading profit (after tax): / Q´>oqS>J àm°{’$Q> (Q>¡³g Ho$ níMmV²)
2012- ` 12,200; 2013 - ` 15,000; 2014 - ` 2,000 (Loss); and 2015 - ` 21,000.

(iii) Market rate of interest on investment- 8% / {Zdoe na ã¶mO H$s ~mOma Xa - 8%.