Ascertain the value of goodwill of Rainbow Ltd. carrying on business from the following:
Balance Sheet as at 31 March 2010
|
Liabilities |
Assets |
||
|
Paid-up Capital: |
Goodwill at Cost |
5,00,000 |
|
|
50,000 Shares of Z 100 Each Fully |
50,00,000 |
Land & Buildings at Cost |
22,00,000 |
|
Paid |
|||
|
Bank Overdraft |
9,60,000 |
Plant & Machin- |
20,00,000 |
|
Sundry Creditors |
16,10,000 |
ery at Cost (Less |
|
|
Depreciation) |
|||
|
Provision for |
8,50,000 |
Stock-in-trade |
30,00,000 |
|
Taxation |
|||
|
Profit & Loss |
12,00,000 |
Book Debts (Less |
19,20,000 |
|
Appropriation |
Provision for Bad |
||
|
Account |
Debts |
||
|
96,20,000 |
96,20,000 |
The company started operations in 2005 with a paid-up capital as aforementioned of Rs.50,00,000. Profits earned before providing for taxation have been as follows:
|
Year ended 31 March |
|
|
2006 |
12,50,000 |
|
2007 |
13,00,000 |
|
2008 |
17,00,000 |
|
2009 |
20,00,000 |
|
2010 |
17,50,000 |
Income tax @ 50% has been payable on these profits. Dividends have been distributed from the profit of the first 3 years @ 10% and from those of next 2 years @ 15% of the paid-up capital.