Question 17 Chapter 3 – Unimax Class 12 Part 1 – 2021

Question 17 Chapter 3 - Unimax Class 12 Part 1 - 2021

Question 17 Chapter 3 – Unimax Class 12 Part 1

17. Goodwill is to be valued at 3 years’ purchase of average profits of 3 years upto the date of valuation after deducting interest @ 6% on capital employed and a fair remuneration to each partner. The profits are assumed to be earned evenly throughout the year. Fair remuneration for the work done by each partner is Rs. 18000 per annum and total capital employed is Rs. 180000. The trading profits (before charging interest on Capital employed and remuneration of partners) were 2018 Rs. 65000 ; 2019 Rs. 75000 ; 2020 Rs. 80000 ; 2021 Rs. 62000. Calculate value of goodwill of a firm as on 30.6.2021. The firm is having three partners.

The solution of Question 17 Chapter 3 – Unimax Class 12 Part 1:

Capital employed = Rs. 180000
Number of partners = 3
Fair Renuveration of each partner = Rs. 18000 P.a.
Total Annual Remuneration of 3 partners
Rs. 18000 X 3 = Rs. 54000

Year Profit – (Remuneration + Interest on Capital) Net Profits (Rs.)
2003 65000-(5400+10800) 200
2004 75000-(5400+10800) 10200
2005 80000-(5400+10800) 15200
2006 62000-(5400+10800) (2800)(loss)
Total Profits of 3 years upto date of valuation i.e. 30-6-2021 Rs.
Profit for 2018 for 6 months (200 X 6/12)=(1-7-2018 to 31-12-2018) 100
Profit for 2019 for full year 10200
Profit for 2020 for full year 15200
Loss for 2021 for 6 months upto 30-6-2021(Rs. 2800 X 6/12) (1400)
Total profits for 3 years upto date of valuation i.e. 30-6-2021 24100

Average Profits = Total Profits/No. of years = Rs. 24100/3
                         = Rs. 8033.33
Goodwill = Average Profits X Number of years of purchase
               = Rs. 8033.33 X 3
                = Rs. 24100

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