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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
Asin and Shreyas were partners sharing profits and losses in the ratio of 2 : 1. They admitted Shyam as a partner for a 1/5th share in profits. For this purpose, goodwill of the firm was to be valued on the basis of three years’ purchase of the last five years’ average profit. Profits for the last five years ended 31st March were: 2021 ₹1,25,000; 2022 ₹1,00,000; 2023 ₹1,87,500; 2024 (₹62,500); 2025 ₹1,25,000. Calculate goodwill after adjusting the following: the profit of 2021-22 was calculated after charging ₹25,000 for an abnormal loss of goods by fire.
The abnormal loss of ₹25,000 charged in 2021-22 is added back to make the profit normal:
Normal profits: 2021 ₹1,25,000; 2022 ₹1,25,000 (1,00,000 + 25,000); 2023 ₹1,87,500; 2024 (₹62,500); 2025 ₹1,25,000.
Total normal profit = ₹5,00,000; Average Profit = ₹5,00,000 / 5 = ₹1,00,000.
Goodwill = ₹1,00,000 × 3 = ₹3,00,000.
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.4 - 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.
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