Question 05 Chapter 3 of +2-A
5. Purav and Purvi are partners in firm sharing profits and losses in the ratio of 2 : 1. They decide to take Parv into a partnership for 1/4th share on 1st April 2019. 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 for goodwill purpose of the past five years are:
| Year | 2018-19 | 2017-18 | 2016-17 | 2015-16 | 2014-15 |
| Profits | 8,00,000 | 15,00,000 | 18,00,000 | 4,00,000 (Loss) | 13,00,000 |
The solution of Question 05 Chapter 3 of +2-A:
| Average Profit For 5 years | = | Total Profit for past given years |
| Number of years |
| Average Profit | = | 14,000+15,500+10,000+16,000+15,000 |
| 5 |
| = | 70,500 | |
| 5 | ||
| = | 14,100 |
|
Average Profit For 4 years |
= | 15,500+10,000+16,000+15,000 |
| 4 |
| = | 56,500 | |
| 4 | ||
| = | 14,125 |
The average Profit of four years is taken to compute the value of goodwill of the firm. This is because the Average Profit of four years is more than the Average Profit of five years.
Number of years’ purchase = 14
| Goodwill | = | Average Profit X Number of years’ of purchase |
| Goodwill | = | 14,125 X 4 |
| Goodwill | = | 56,500 |
Also, Check out the solved question of previous Chapters: –
T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
- Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
- Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
- Chapter No. 3 – Goodwill: Nature and Valuation
- Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
- Chapter No. 5 – Admission of a Partner
- Chapter No. 6 – Retirement/Death of a Partner
- Chapter No. 7 – Dissolution of a Partnership Firm
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 8 – Company Accounts – Accounting for Share Capital
- Chapter No. 9 – Company Accounts – Issue of Debentures
- Chapter No. 10 – Redemption of Debentures
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 1 – Financial Statements of a Company
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
- Chapter No. 4 – Accounting Ratios
- Chapter No. 5 – Cash Flow Statement
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