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Question 08 Chapter 3 of +2-A
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8. Abhay, Babu and Charu are partners sharing profits and losses equally. They agree to admit Daman for an equal share of profit. For this purpose, the value of goodwill is to be calculated on
the basis of four years’ purchase of the average profit of the last five years. These profits for the year ended 31st March were:
| Year | 2015 | 2016 | 2017 | 2018 | 2019 |
| Profit/(Loss) | 1,50,000 | 3,50,000 | 5,00,000 | 7,10,000 | (5,90,000) |
On 1st April 2018, a car costing 1,00,000 was purchased and debited to Travelling Expenses Account, on which depreciation is to be charged @ 25%. The interest of 10,000 on Non-trade Investments is a credit to income for the year ended 31st March 2018 and 2019. Calculate the value of goodwill after adjusting the above.
The solution of Question 08 Chapter 3 of +2-A:
| Average Profit | = | Total Profit for past given years |
| Number of years |
| Average Profit | = | 1,50,000+3,50,000+5,00,000+7,75,000+(-6,00,000) |
| 5 |
| = | 11,75,000 | |
| 5 | ||
| = | 2,35,000 |
Number of years’ purchase = 4
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| Goodwill | = | Average Profit X Number of years of purchase |
| Goodwill | = | 2,35,000 X 4 |
| Goodwill | = | 9,40,000 |
Working Note: –
*1 Calculation of Adjusted Profit
| Adjusted profit for the year 31st March 2018: | = | Total Profit + Purchase of car wrongly debited – Dep. On Car – Interest on Non Traded investment |
| = | 7,10,000 + 1,00,000 – 25,000 – 10,000 | |
| = | 7,75,000 | |
| Adjusted profit for the year 31st March 2019: | = | Total Profit/(loss) – Interest on Non Traded investment |
| = | (-5,90,000) – 10,000 | |
| = | (-6,00,000) |
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
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