Question 10 Chapter 3 of +2-A
10. Bhaskar and Pillai are partners sharing profits and losses in the ratio of 3 : 2. They admit Kanika into partnership for 1/4th share in profit. Kanika brings in her share of goodwill in cash.
Goodwill for this purpose is to be calculated at two years’ purchase of the average normal profit of past three years. Profits of the last three years ended 31st March, were:
2017 – Profit 50,000 including profit on sale of assets 5,000.
2018 – Loss 20,000 including loss by fire 30,000.
2019 – Profit 70,000 including insurance claim received 18,000 and interest on investments and Dividend received 8,000.
Calculate the value of goodwill. Also, calculate goodwill brought in by Kanika.
The solution of Question 10 Chapter 3 of +2-A:
| Average Profit | = | Total Profit for past given years |
| Number of years |
| Average Profit | = | 45,000+10,000+44,000 |
| 3 |
| = | 99,000 | |
| 3 | ||
| = | 33,000 |
Number of years’ purchase = 2
| Goodwill | = | Average Profit X Number of years of purchase |
| Goodwill | = | 33,000 X 2 |
| Goodwill | = | 66,000/- |
| Kanika’s Share of Goodwill | = | Goodwill X Kanika’s Profit share |
|
| = | 66,000 X |
1 | |
| 4 | |||
| Kanika’s Share of Goodwill | = | 16,500/- |
|
Working Note: –
*1 Calculation of Adjusted Profit
| Adjusted profit for the year ended 31st March 2017 | = | Total Profit − Profit on Sale of Assets |
| = | 50,000 – 5,000 | |
| = | 45,000 |
|
| Adjusted profit for the year ended 31st March 2018 | = | Total Loss + Loss by fire |
| = | (-20, 000) + 30,000 | |
| = | 10,000 | |
| Adjusted profit for the year ended 31st March 2019 | = | Total Profit – Insurance Claim Received -Interest on Investment – Dividend Received |
| = | 70,000 – 18,000 – 8,000 | |
| = | 44,000 |
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
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