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Question 08 Chapter 3 of +2-A
8. Abhay, Babu and Charu are partners sharing profits and losses equally. They agree to admit Daman for an equal share of profit. For this purpose, the value of goodwill is to be calculated on
the basis of four years' purchase of the average profit of the last five years. These profits for the year ended 31st March were:
| Year | 2015 | 2016 | 2017 | 2018 | 2019 |
| Profit/(Loss) | 1,50,000 | 3,50,000 | 5,00,000 | 7,10,000 | (5,90,000) |
On 1st April 2018, a car costing 1,00,000 was purchased and debited to Travelling Expenses Account, on which depreciation is to be charged @ 25%. The interest of 10,000 on Non-trade Investments is a credit to income for the year ended 31st March 2018 and 2019. Calculate the value of goodwill after adjusting the above.
| Average Profit | = | Total Profit for past given years |
| Number of years |
| Average Profit | = | 1,50,000+3,50,000+5,00,000+7,75,000+(-6,00,000) |
| 5 |
| = | 11,75,000 |
| 5 | |
| = | 2,35,000 |
Number of years’ purchase = 4
| Goodwill | = | Average Profit X Number of years of purchase |
| Goodwill | = | 2,35,000 X 4 |
| Goodwill | = | 9,40,000 |
Working Note: -
*1 Calculation of Adjusted Profit
| Adjusted profit for the year 31st March 2018: | = | Total Profit + Purchase of car wrongly debited – Dep. On Car – Interest on Non Traded investment |
| = | 7,10,000 + 1,00,000 – 25,000 – 10,000 | |
| = | 7,75,000 |
|
| Adjusted profit for the year 31st March 2019: | = | Total Profit/(loss) – Interest on Non Traded investment |
| = | (-5,90,000) - 10,000 | |
| = | (-6,00,000) |
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
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 "Q.No.8 | Chapter 3 – Goodwill: Nature and Valuation | T.S. Grewal 12 Class Book Keeping Part - A - Vol. 1", focusing on key definitions, step-by-step concepts, applications, and revision guidelines relevant to T.S. Grewal 12 Class Book Keeping Part - A - Vol. 1.
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