Question 14 Chapter 3 of +2-A
14. A and B are partners sharing profits and losses in the ratio of 5 : 3. On 1st April 2019, C is admitted to the partnership for 1/4th share of profits. For this purpose, goodwill is to be valued at two years’ purchase of the last three years’ profits after allowing partners’ remuneration. Profits to be weighted 1: 2 : 3, the greatest weight being given to last year. Net profit before partners’ remuneration were: 2016-17 : 2,00,000; 2017-18 : 2,30,000; 2018-19 : 2,50,000. The remuneration of the partners is estimated to be 90,000 p.a. Calculate the amount of goodwill.
The solution of Question 14 Chapter 3 of +2-A:
| Year |
Profit A |
Partners’ |
Profit after |
Weight D |
Product (E = C * D) |
| 2016-17 | 2,00,000 | 90,000 | 1,10,000 | 1 | 1,10,000 |
| 2017-18 | 2,30,000 | 90,000 | 1,40,000 | 2 | 2,80,000 |
| 2018-19 | 2,50,000 | 90,000 | 1,60,000 | 3 | 4,80,000 |
| Total | 6 | 8,70,000 | |||
|
Average Profit |
= | Total Profit for past given years |
| Number of years |
| = | 8,70,000 | |
| 6 | ||
| = | 1,45,000 |
Number of years’ purchase = 3
| Goodwill | = | Average Profit X Number of years’ purchase |
| Goodwill | = | 1,45,000 X 3 |
| Goodwill | = |
2,90,000 |
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
