Question 17 Chapter 3 of +2-A
17. Dinesh and Mahesh are partners sharing profits and losses in the ratio of 3 : 2. They admit Ramesh into partnership for 1/4th share in profits. Ramesh brings in his share of goodwill in cash. Goodwill for this purpose shall be calculated at two years’ purchase of the weighted average normal profit of past three years. Weights being assigned to each year 2017−1;
2018−2 and 2019−3. Profits of the last three years were:
2017 − Profit 50,000 including profits on sale of assets 5, 000.
2018 − Loss 20,000 including loss by fire 35, 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 the goodwill brought in by Ramesh.
The solution of Question 17 Chapter 3 of +2-A:
| Year |
Adjusted Profit A |
Weight |
Product (E = C * D) |
| 2017 | 45,000 | 1 | 45,000 |
| 2018 | 15,000 | 2 | 30,000 |
| 2019 | 44,000 | 3 | 1,32,000 |
| Total | 6 | 2,07,000 | |
Note: – For calculation of Adjusted profit see the working note at the end of the question.
|
Average Profit |
= | Total Profit for past given years |
| Number of years |
| = | 2,07,000 | |
| 6 | ||
| = | 34,500 |
Number of years’ purchase = 2
| Goodwill | = | Weighted Average Profit X Number of years of purchase |
| Goodwill | = | 35,000 X 3 |
| Goodwill | = | 69,000 |
Working Note: –
*1Calculation of Adjusted Profit
| Adjusted profit for the year ended 31st March 2017 | = | Total Profit − Gain on Sale of Fixed Assets |
| = | 50,000 – 5,000 | |
| = | 45,000 | |
| Adjusted profit for the year ended 31st March 2018 | = | Total Profit + Voluntary retirement Compensation paid |
| = | 35,000 – 20,000 | |
| = | 15,000 | |
| Adjusted profit for the year ended 31st March 2019 | = | Total Profit + Loss by fire |
| = | 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
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
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