Question 12 Chapter 3 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 12 Chapter 3 of +2-A

Question 12 Chapter 3 of +2-A

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:

  1. 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.
  2. 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.
  3. 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)

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

2 Book 1 min - Question 12 Chapter 3 of +2-A - T.S. Grewal 12 Class Part - A Vol. 1
Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms

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