CBSE Class 12 Goodwill-Nature and Valuation

Scroll down to download pdf file

CBSE Basic Concepts for Class 12 Accountancy -Goodwill-Nature and Valuation . Based on CBSE and CCE guidelines. The students should read these basic concepts to gain perfection which will help him to get more marks in CBSE examination.

CHAPTER 2

Goodwill : Nature and Valuation

Meaning of Goodwill:

Goodwill places the organization at a good position due to which the organization is able to earn higher profits without any extra efforts. Goodwill cannot be seen but felt. Therefore goodwill is called an Intangible asset.

Factors affecting the value of Goodwill :

1. Efficient management

2. Quality of products

3. Location of business

4. Availability of raw material

5. Favorable contracts

Need for valuing goodwill : Whenever the mutual rights of the partners changes then party which makes a sacrifice must be compensated. This basis of compensation is goodwill so we need to calculate goodwill. Mutual rights change under following circumstances

1) When profit sharing ratio changes

2) On admission of a partner

3) On Retirement or death of a partner

4) When amalganation of two firms taken place.

5) When partnership firm is sold.

Methods of valuation of goodwill :

1. Average profit method

2. Super profit method

3. Capitalization method

Average Profit Method

The profit earned by a Firm during previous accounting periods on an average basis is called average profit. Goodwill is calculated on the basis of average profit due to future expectations of earning capacity of the firm. Illustration 1. (Average Profit Method) Akanksha,Chetna and Dipanshu are partners in a firm sharing profits and losses in the ratio of 3:2:1. They decide to take Jatin into partnership from January 1,2012 for 1/5 share in the future profits. For this purpose , goodwill is to be valued at 2 times the average annual profits of the previous four years. The average profits for the past four years were:

Super Profit Method

If a firm earns higher profit in comparison to normal profit (generally earned by other firms of same industry) then the difference is called Super Profit. Goodwill is calculated on the basis of Super profit due to future expectations of learning capacity of the firm. Super profit = Average profit Normal profit

Normal Profit = Investment (Capital Employed) x Normal Rate of Return/100 


Please refer to attached file for CBSE Class 12 Goodwill-Nature and Valuation

Click on the text For more study material for Accountancy please click here - Accountancy

Latest CBSE News

  • National achievement survey (NAS) for Class 10 will beheld by the national council for educational research and training (NCERT), New Delhi on 5th February for students in almost 360 government schools across Goa. The NAS test will be conducted for mathematics, English, social sciences, science and modern Indian languages. The test will be held in school premises and will be invigilated by the...
  • Class 10 and class 12 board examination students can now air their concerns regarding the questions which will come in the board examinations directly to CBSE. A latest announcement has come from CBSE which states that an observation schedule will be developed by CBSE according to which the students or schools or even teachers can send their concerns to CBSE within 24 hours of the board exam...
  • CBSE has withdrawn the circular issued in 2017 regarding Uniform Assessment system for class 6 to class 9 in line with the changes done for class 10 and class 12 where board examinations have been introduced again. Schools have been advised to follow the same examination pattern which has been followed by the schools itself and no change have been advised in that now and all changes suggested by...
  • A strange question appeared in the mathematics paper for Primary school students of grade 5 at a school in the Chinese district of Shunqing The question was: "If a ship had 26 sheep and 10 goats on board, how old is the ship's captain?" This question has gone viral on the internet with parents trying to guess the correct answer. Most think that this question was a mistake but the education...
  • Concerns have been shown by the class 12 students regarding the datesheet released by CBSE for class 12 board examination. Some of the examinations are back to back leaving little space for students to relax and revise for next exam. Specifically those in the humanities/ arts stream are the most impacted as exam for psychology exam is on April 5, political science exam is on April 6 and legal...