Question 09 Chapter 3 of +2-Part-1
9. (Weighted Average Profit Method) Calculate the value of goodwill of a firm on the basis of three years purchase of the weighted average profit of the last four years. The profits of last four years were:
| Year | Profit/Loss |
| 2014-15 | 5,000 |
| 2015-16 | 5,200 |
| 2016-17 | 9,300 |
| 2017-18 | 10,700 |
During 2014-15, there was abnormal loss of Rs.1,000 due to theft and in 2017-18 there was a profit from sale of land amounting to Rs.4,000. In 2015-16, closing stock was over valued by Rs.1,200. The weights are 1,2,3 and 4 for the year 2014-15,2015-16,2016-17 and 2017-18 respectively.
The solution of Question 09 Chapter 3 of +2 Part-1: –
| Calculation of Adjusted Profit |
||||
| Particulars / Year Ended |
2014-15 | 2015-16 |
2016-17 |
2017-18 |
| Profit/(Loss) | 5,000 | 5,200 | 9,300 | 10,700 |
| Add: Abnormal Loss | 1,000 | |||
| Less: Profit on sale of land | -4,000 | |||
| Less: Overvaluation of Closing Stock | – 1,200 | |||
| Add: Overvaluation of Opening Stock | 1,200 | |||
| Total | 6,000 | 4,000 | 10,500 | 6,700 |
| Calculation of Weighted Average Profit |
|||
| Year |
Adjusted Profit (A) | Weight (D) |
Product (E = C * D) |
| 2014-15 | 6,000 | 1 | 6,000 |
| 2015-16 | 4,000 | 2 | 8,000 |
| 2016-17 | 10,500 | 3 | 31,500 |
| 2017-18 | 6,700 | 4 | 26,800 |
| Total | 10 | 72,300 | |
| Weighted Average Profit | = | Total weight Profit for past given years |
| Total weight | ||
| = | 72,300 | |
| 10 | ||
| = | 7,230 |
| Number of years’ purchase | = | 2 |
| Goodwill | = | Weighted Average Profit X Number of years’ purchase |
| Goodwill | = | 7,230 X 3 |
| Goodwill | = | 21,690 |
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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
- Chapter No. 3 – Partnership Accounts – II (Introduction)
- Chapter No. 4 – Partnership Accounts – III (Goodwill: Nature and Valuation)
- Chapter No. 5 – Partnership Accounts – IV (Reconstitution of Partnership)
- Chapter No. 6 – Partnership Accounts – V (Admission of A Partner)
- Chapter No. 7 – Partnership Accounts – VI (Retirement and Death of A Partner)
- 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 (Balance Sheet Only)
- Chapter No. 2 – Techniques of Financial Statement Analysis
- Chapter No. 3 – Ratio Analysis
- Chapter No. 4 – Cash Flow Statement
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