Texts: From the following particulars of three companies, ascertain the value of goodwill. Terms and conditions are as follows:
(i) Assets are to be revalued.
(ii) Goodwill is to be valued at four years' purchase of average super profits for three years. Such average is to be calculated after adjustment of depreciation at ten percent on the amount of increase/decrease on revaluation of fixed assets. Income tax is to be ignored.
(iii) Normal profit on capital employed is to be taken at 10 percent, capital employed being considered on the basis of net revalued amounts of tangible assets.
The summarized Balance Sheets and relevant information are given below:
Liabilities (Rs. in Lakhs)
PLtd. Q Ltd. RLtd.
Equity shares of Rs.10 each 24.00 28.00 12.00
Reserves 4.00 2.00 4.00
10 percent debentures 8.00 4.00
Expenses and creditors 8.00 6.00 4.00
Total 44.00 36.00 24.00
Assets
Goodwill Net tangible block Current assets
PLtd. 2.00 24.00 10.00
QLtd. 32.00 12.00
RLtd. 20.00 4.00 24.00
PLtd. 40,00,000 14,00,000 7,20,000
QLtd. 20,00,000 5,60,000 5,76,000
RLtd. 24,00,000 3,20,000 2,72,000
Revaluation of tangible block
Revaluation of current assets
Average annual profit for three years before charging debenture interest
