Question 16 Chapter 3 of +2-A

Question 16 Chapter 3 of +2-A

16. Calculate goodwill of a firm on the basis of three years’ purchase of the Weighted Average
Profit of the last four years. The profits of the last four financial years ended 31st March, were:
2016 − 25,000; 2017 − 27,000; 2018 − 46,900 and 2019 − 53,810. The weights assigned to each year are: 2016 − 1; 2017 − 2; 2018 − 3; 2019 − 4. You are supplied the following information:
(i) On 1st April, 2016, a major plant repair was undertaken for 10,000 which was charged to revenue. The said sum is to be capitalized for goodwill calculation subject to adjustment of depreciation of 10% on Reducing Balance Method.
(ii) The Closing Stock for the years ended 31st March, 2017 and 2018 were overvalued by 1,000 and 2,000 respectively.
(iii) To cover management cost an annual charge of 5,000 should be made for the purpose of goodwill valuation

 

The solution of Question 16 Chapter 3 of +2-A

:

 

Particulars / Year Ended
31st March 2016

31st March 2017

31st March 2018

31st March 2019

Profit/(Loss)25,00027,00046,90053,810
Add: Capitalized the number of Repairs of Plant 10,000  
Less: Depreciation @10% W.D.V – 1,000– 900– 810
Less: Overvaluation of Closing Stock – 1,000– 2,000 
Add: Overvaluation of Opening Stock  1,0002,000
Less: Remuneration to Partners– 5,000– 5,000– 5,000– 5,000
Adjusted Profits/(Loss)20,00030,00040,00050,000

 

 

 

Year
Adjusted Profit
A

Weight
D

Product
(E = C * D)

31st March 201620,000120,000
31st March 201730,000260,000
31st March, 201840,00031,20,000
31st March, 201950,00042,00,000
Total101,92,000

 

 

Average Profit 

Total Profit for past given years
Number of years

 

 4,00,000
10
 =40,000



Number of years’ purchase = 4

Goodwill=Weighted Average Profit X Number of years’ purchase
Goodwill=40,000X 3
Goodwill =1,20,000

 

 



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 16 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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