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Question 04 Chapter 3 of +2-Part-1
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4. (Average Profit Method) Rani purchased Vani’s business on 31st March 2015. The profit disclosed by Vani business for the last three years were as follows:
Year
2013: Rs.40,000 (including an abnormal gain Rs.5,000)
2014: Rs.50,000(after charging an abnormal loss of Rs.10,000)
2015: Rs.45,000(excluding Rs.5,000 as insurance premium of firms property now to be insured)
Calculate the value of firm’s Goodwill on the basis of 2 years purchase of the average profit for the last three years.
The solution of Question 04 Chapter 3 of +2 Part-1: –
| Calculation of Weighted Average Profit | |||
| Year | Adjusted Profit (A) | Weight (D) | Product (E = C * D) |
| 2013 | 40,000 | -5,000 | 35,000 |
| 2014 | 50,000 | 10,000 | 60,000 |
| 2015 | 45,000 | – 5,000 | 40,000 |
| Total | 15 | 6,00,000 | |
| Average Profit | = | Total Profit for past given years |
| Number of years | ||
| = | 35,000 + 60,000 + 40,000 | |
| 3 | ||
| = | 1,35,000 | |
| 3 | ||
| = | 45,000 |
| Number of years’ purchase | = | 2 |
| Goodwill | = | Average Profit X Number of years’ purchase |
| Goodwill | = | 45,000 X 2 |
| Goodwill | = | 90,000 |
Working Note : –
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*1 Calculation of Profits of last three years
| Adjusted Profit for the year 2013 | = | Total Profit −Abnormal Gain |
| = | 40,000 -5,000 | |
| = | 35,000 |
| Adjusted Profit for the year 2014 | = | Total Profit +Abnormal Loss |
| = | 50,000 +10,000 | |
| = | 60,000 |
| Adjusted Profit for the year 2015 | = | Total Profit −Indirect Expenses |
| = | 45,000 -5,000 | |
| = | 40,000 |
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Also, Check out the solved question of previous Chapters: –
Usha Publication – Accountancy PSEB (Class 12) – Volume I – Solution
- Chapter No. 1 – Accounting Not for Profit Organisations
- Chapter No. 2 – Partnership Accounts – I (Introduction)
- Chapter No. 3 – Partnership Accounts – II (Goodwill: Nature and Valuation)
- Chapter No. 4 – Partnership Accounts – III (Reconstitution of Partnership)
- Chapter No. 5 – Partnership Accounts – IV (Admission of A Partner)
- Chapter No. 6 – Partnership Accounts – V (Retirement and Death of A Partner)
- Chapter No. 7 – Partnership Accounts – VI (Dissolution of Partnership Firm)
- Chapter No. 8 – Company Accounts (Share Capital)
- Chapter No. 9 – Company Accounts (Issue of Debentures)
- Chapter No. 10 – Company Accounts (Redemption of Debentures)
Usha Publication – Accountancy PSEB (Class 12) – Volume II – Solution
- Chapter No. 1 – Financial Statements of a Company
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis- Comparative and Common Size
- Chapter No. 4 – Ratio Analysis
- Chapter No. 5 – Cash Flow Statement
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