Question 17 Chapter 3 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 17 Chapter 3 of +2-A

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
D

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 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’ 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)

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

 

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2 Book 1 min - Question 17 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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