From the following information supplied to you, ascertain the value of goodwill of XYZ Ltd. which is carrying on business as a retail trader, under super profits method:
Balance Sheet as on 31 March 2010
|
Liabilities |
Assets |
||
|
Paid-up Capital: |
Goodwill |
2,50,000 |
|
|
25,000 Shares of |
25,00,000 |
Land & Building at Cost |
11,00,000 |
|
Paid |
|||
|
Bank Overdraft |
5,83,000 |
Plant & |
10,00,000 |
|
Sundry Creditors |
9,05,000 |
Machinery at |
|
|
Cost |
|||
|
Provision of |
1,95,000 |
Stock-In-trade |
15,00,000 |
|
Taxation |
|||
|
Profit & Loss |
5,66,500 |
Book Debts (Less |
9,00,000 |
|
Appropriation |
Provision for Bad |
||
|
A/c |
Debts) |
||
|
47,50,000 |
47,50,000 |
The company commenced operations in 1990 with a paid-up capital of Rs.25,00,000. Profits for recent years (after taxation) have been as follows:
|
Year Ended 31 March |
|
|
2006 |
(2,00,000) |
|
2007 |
4,40,000 |
|
2008 |
5,15,000 |
|
2009 |
5,80,000 |
|
2010 |
6,50,000 |
The loss in 2005-06 occurred due to a prolonged strike. The income tax paid so far has been at the average rate of 40% but it is likely to be 50% from 2010-11 onwards. Dividends were distributed at the rate of 10% on the paid-up capital in 2006-07 and 2007-08 at the rate of 15% in 2008-09 and 2009-10. The price of shares is ruling at Rs.125 at the end of the year ended 31 March 2010. Profits till 2009-10 have been ascertained after debiting Rs.2,00,000 as remuneration to the managing director. The government has approved a remuneration of Rs.3,00,000 with effect from 1 April 2010. The company has been able to secure a contract for supply of materials at advantageous prices. The advantage has been valued at Rs.2,00,000 p.a. for the next 5 years.