Loading Tutorstips...
✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
Purav and Purvi are partners in a firm sharing profits and losses in the ratio of 2 : 1. They admit Parv into partnership for a 1/4th share on 1st April, 2025. For this purpose, goodwill is to be valued at four times the average annual profit of the previous four or five years, whichever is higher. The agreed profits of the past five years are: 2021 ₹14,000; 2022 ₹15,500; 2023 ₹10,000; 2024 ₹16,000; 2025 ₹15,000. Calculate the value of goodwill.
Average Profit of five years = ₹70,500 / 5 = ₹14,100.
Average Profit of four years (2022 to 2025) = (₹15,500 + ₹10,000 + ₹16,000 + ₹15,000) / 4 = ₹56,500 / 4 = ₹14,125.
As the four years’ average (₹14,125) is higher, it is taken for valuation.
Goodwill = ₹14,125 × 4 = ₹56,500.
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 "T.S. Grewal Class 12 Chapter 2 Q.3 - Nature and Valuation of Goodwill", focusing on key definitions, step-by-step concepts, applications, and revision guidelines relevant to Chapter 2 - Nature and Valuation of Goodwill.
It is primarily curated for Class 11 and Class 12 high school commerce, accounting, and economics students, as well as aspirants preparing for board exams or CA Foundation.
You can take our custom-built interactive practice quiz directly on this page to test your understanding of "T.S. Grewal Class 12 Chapter 2 Q.3 - Nature and Valuation of Goodwill" instantly.