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Question 07 Chapter 3 of +2-A
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Average Profit Method when Past Adjustments are Made: –
7. Divya purchased Jyoti’s business with effect from 1st April 2019. Profits shown by Jyoti’s
business for the last three financial years was:
2016-17 : 1,00,000 including an abnormal gain of 12, 500.
2017-18 : 1,25,000 after charging an abnormal loss of 25, 000.
2018-19: 1,12,500 excluding 12, 500 as insurance premium on firm′s property −now to be insured.
Calculate the value of a firm’s goodwill on the basis of two year’s purchase of the average profit of the last three years.
The solution of Question 07 Chapter 3 of +2-A:
| Average Profit | = | Total Profit for past given years |
| Number of years |
| Average Profit | = | 87,500+1,50,000+1,00,000 |
| 3 |
| = | 3,37,500 | |
| 3 | ||
| = | 1,12,500 |
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Number of years’ purchase = 2
| Goodwill | = | Average Profit X Number of years of purchase |
| Goodwill | = | 1,12,500 X 2 |
| Goodwill | = | 2,25,000 |
Working Note: –
*1Calculation of Adjusted Profit
| Adjusted profit for the year 2016-17 | = | Total Profit −Abnormal Gain |
| = | 1,00,000 -12,500 | |
| = | 87,500 | |
| Adjusted profit for the year 2017-18 | = | Total Profit +Abnormal Loss |
| = | 1,25,000 +25,000 | |
| = | 1,50,000 | |
| Adjusted profit for the year 2018-19 | = | Total Profit −Indirect Expenses |
| = | 1,12,500 -12,500 | |
| = | 1,00,000 |
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
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
