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Question 05 Chapter 3 of +2-Part-1
5. (Average Profit Method) Goodwill is to be valued at two years purchase of 3 years normal average profit of the firm. The profit for 2014-15, Rs.20,000 (including insurance claim received of Rs.40,000). The loss for 2015-16 Rs.8,000(including voluntary retirement compensation paid Rs.1,10,000). The profit for 2016-17 Rs.1,05,000 (including a profit of Rs.25,000 on the sale of a fixed asset. Calculate the value of goodwill.
| Average Profit | = | Total Profit for past given years |
| Number of years | ||
| = | (-20,000) + 1,02,000 + 80,000 | |
| 3 | ||
| = | 1,62,000 | |
| 3 | ||
| = | 54,000 |
| Number of years’ purchase | = | 2 |
| Goodwill | = | Average Profit X Number of years’ purchase |
| Goodwill | = | 54,000 X 2 |
| Goodwill | = | 1,08,000 |
Working Note : -
*1 Calculation of Profits of last three years
| Adjusted Profit for the year 2013 | = | Total Profit −Abnormal Gain |
| = | 20,000 -40,000 | |
| = | -20,000 |
| Adjusted Profit for the year 2014 | = | Total Profit +Abnormal Loss |
| = | (-8,000) +1,10,000 | |
| = | 1,02,000 |
| Adjusted Profit for the year 2015 | = | Total Profit −Indirect Expenses |
| = | 1,05,000 -25,000 | |
| = | 80,000 |
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Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
This guide covers "Question 05 Chapter 3 of +2 Part-1 - USHA Publication 12 Class Part - 1", focusing on key definitions, step-by-step concepts, applications, and revision guidelines relevant to USHA Publication +2 Part 1.
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