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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
Tarang purchased Jyoti’s business with effect from 1st April, 2025. Profits shown by Jyoti’s business for the last three financial years ended 31st March were: 2023 ₹1,00,000 (including an abnormal gain of ₹12,500); 2024 ₹1,25,000 (after charging an abnormal loss of ₹25,000); 2025 ₹1,12,500 (excluding ₹12,500 as insurance premium on the firm’s property, now to be insured). Calculate the value of the firm’s goodwill on the basis of two years’ purchase of the average profit of the last three years.
Calculation of Normal Profit
| Year | Adjustment | Normal Profit (₹) |
|---|---|---|
| 2023 | 1,00,000 – 12,500 (abnormal gain) | 87,500 |
| 2024 | 1,25,000 + 25,000 (abnormal loss) | 1,50,000 |
| 2025 | 1,12,500 – 12,500 (insurance premium) | 1,00,000 |
Average Profit = (₹87,500 + ₹1,50,000 + ₹1,00,000) / 3 = ₹3,37,500 / 3 = ₹1,12,500.
Goodwill = ₹1,12,500 × 2 = ₹2,25,000.
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.5 - 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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