Question 12 Chapter 3 of +2-A
Table of Contents
Geet and Meet are partners in a firm. They admit Jeet into a partnership for an equal share. It was agreed that goodwill will be valued at three years’ purchase of the average profit of the last five years. Profits for the last five years were:
| Year Ended | 31st March 2015 | 31st March 2016 | 31st March 2017 | 31st March 2018 | 31st March 2019 |
| Profit/(Loss) | 90,000(Loss) | 1,60,000 | 1,50,000 | 65,000 | 1,77,000 |
Books of Account of the firm revealed that:
- The firm had gain profit of 50,000 from the sale of machinery sold in the year ended 31st March 2016. The gain profit was credited in the Profit and Loss Account.
- There was an abnormal loss of 20,000 incurred in the year ended 31st March 2017 because of a machine becoming obsolete in an accident.
- Overhauling cost of second-hand machinery purchased on 1st July 2017 amounting to 1,00,000 was debited to Repairs Account. Depreciation is charged @ 20% p.a. on Written Down Value Method.
Calculate the value of goodwill.
The solution of Question 12 Chapter 3 of +2-A:
| Average Profit | = | Total Profit for past given years |
| Number of years |
| Average Profit | = | (- 90,000)+1,10,000+1,70,000+1,50,000+1,60,000 |
| 5 |
| = | 5,00,000 | |
| 5 | ||
| = | 1,00,000 |
Number of years’ purchase = 3
| Goodwill | = | Average Profit X Number of years’ purchase |
| Goodwill | = | 1,00,000 X 3 |
| Goodwill | = | 3,00,000 |
Working Note: –
*1 Calculation of Adjusted Profit
| Particulars / Year Ended |
31st March 2015 | 31st March 2016 |
31st March 2017 |
31st March 2018 |
31st March 2019 |
| Profit/(Loss) | (- 90,000) | 1,60,000 | 1,50,000 | 65,000 | 1,77,000 |
| Less: Gain on Sale of Machinery | – 50,000 | ||||
| Add: Abnormal Loss | 20,000 | ||||
| Add: Overhaul of existing Machinery Debited to Repairs A/c |
1,00,000 | ||||
| Less: Depreciation @20% p.a. | – 15,000 | – 17,000 | |||
| Adjusted Profits/(Loss) | (- 90,000) | 1,10,000 | 1,70,000 | 1,50,000 | 1,60,000 |
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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