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Question 23 Chapter 3 of Class 12 Part – 1 Usha Publication
4. M, P and Q are partners in 2 : 1 : 3 ratio. Their profits for the last three years were 35,000 in 2017 ;₹ 30,000 in 2016 and ₹ 50,000 in 2015. During 2016 (mid of year) a major repair for ₹ 10,000 was wrongly capitalized to the value of building. Building is depreciated at 10% p.a. on WDV.
Goodwill is valued at 2 years purchase of average profits of last three years after adjusting the profits.
Calculation of Adjusted Profit
| Year |
Profit | Adjustments | Adjusted Profit |
|---|---|---|---|
| 2015 | 50,000 | 50,000 | |
| 2016 | 30,000 | - 10,000 + 500 | 20,500 |
| 2017 | 35,000 | + 950 | 35,950 |
| Total | 1,06,450 | ||
| Average Adjusted Profit | = | Total Profit for past given years |
| Number of years | ||
| = | 50,000 + 20,500 + 35,950 | |
| 3 | ||
| = | 1,06,450 | |
| 3 | ||
| = | 35,483.33 |
| Number of years’ purchase | = | 2 |
| Goodwill | = | Average Profit X Number of years’ purchase |
| Goodwill | = | 35,483.33 X 2 |
| Goodwill | = | 70,966.67 |
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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.
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