# Question 19 Chapter 3 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 19 Chapter 3 of +2-A

19. Mahesh and Suresh are partners and they admit Naresh into partnership. They agreed to value goodwill at three years’ purchase on the Weighted Average Profit Method taking profits for the last five years. They assigned weights from 1 to 5 beginning from the earliest year and onwards. The profits for the last five years were as follows:

 Year Ended 31st March 2015 31st March 2016 31st March 2017 31st March 2018 31st March 2019 Profit/(Loss) 20,000 24,000 30,000 25,000 18,000

Scrutiny of books of account revealed the following:

1. A second-hand machine was purchased for 5,00,000 on 1st July 2017 and 1,00,000 were spent to make it operational. 1,00,000 were wrongly debited to Repairs Account. Machinery is depreciated @ 20% p.a. on Written Down Value Method.
2. Closing Stock as on 31st March 2018 was undervalued by 50,000.
3. Remuneration to partners was to be considered as a charge against profit and remuneration of 20,000 p.a. for each partner was considered appropriate.
Calculate the value of goodwill.

The solution of Question 19 Chapter 3 of +2-A

:

 Particulars / Year Ended 31st March 2015 31st March 2016 31st March 2017 31st March 2018 31st March 2019 Profit/(Loss) 1,25,000 1,40,000 1,20,000 55,000 2,57,000 Add: Repairs on new machine wrongly Debited 1,00,000 Less: Depreciation @10% W.D.V – 15,000 – 17,000 Add: Undervaluation of Closing Stock 50,000 Less: Undervaluation of Opening Stock – 50,000 Less: Remuneration to Partners – 40,000 – 40,000 – 40,000 – 40,000 – 40,000 Adjusted Profits/(Loss) 85,000 1,00,000 80,000 1,50,000 1,50,000

 Year Adjusted ProfitA WeightD Product(E = C * D) 31st March 2015 85,000 1 85,000 31st March 2016 1,00,000 2 2,00,000 31st March 2017 80,000 3 2,40,000 31st March, 2018 1,50,000 4 6,00,000 31st March, 2019 1,50,000 5 7,50,000 Total 15 18,75,000

 Average Profit = Total Profit for past given years Number of years

 = 18,75,000 15 = 1,25,000

Number of years’ purchase = 4

 Goodwill = Weighted Average Profit X Number of years’ purchase Goodwill = 1,25,000 X 3 Goodwill = 3,75,000

### 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. 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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