Question 20 Chapter 3 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 20 Chapter 3 of +2-A

Question 20 Chapter 3 of +2-A

20. 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 2015-16 2016-17 2017-18  2018-19
Profit 1,01,000   1,24,000  1,00,000  1,40,000  
Weights  1 2 3 4

On a scrutiny of the accounts, the following matters are revealed:

  1. On 1st December 2017, a major repair was made in respect of the plant incurring 30,000 which was charged to revenue. The said sum is agreed to be capitalised for goodwill calculation subject to adjustment of depreciation of 10% p.a. on Reducing Balance Method.
  2. The closing stock for the year 2016-17 was overvalued by 12,000.
  3. To cover management cost, an annual charge of 24,000 should be made for the purpose of goodwill valuation.
    On 1st April, 2016, a machine having a book value of 10,000 was sold for 11,000 but the proceeds were wrongly credited to Profit and Loss Account. No effect has been given to rectify the same. Depreciation is charged on machine @ 10% p.a. on reducing balance method.

 

The solution of Question 20 Chapter 3 of +2-A

:

 

Particulars / Year Ended
2015-16 2016-17

2017-18

2018-19

Profit/(Loss) 1,01,000 1,24,000 1,00,000 1,40,000
Add: Capitalization of Repairs     30,000  
Less: Correct Depreciation     – 1,000  – 2,900
Add: Wrong Depreciation     900  810
Less: Overvaluation of Closing Stock   – 12,000    
Add: Overvaluation of Opening Stock     12,000  
Less: Management Cost – 24,000 – 24,000 – 24,000 – 24,000
Less: Sale of Assets wrongly credited   – 10,000    
Adjusted Profits/(Loss) 77,000 78,000 1,17,900 1,13,910

 

 

 

Year
Adjusted Profit
A

Weight
D

Product
(E = C * D)

2015 – 16 77,000 1 77,000
2016 – 17 78,000 2 1,56,000
2017 – 18 1,17,900 3 3,53,700
2018 – 19 1,13,910 4 4,55,640
Total 10 10,42,340



Weighted Average Profit

Total Product of Profit for past given years
Number of years

 

  10,42,340
10
  = 1,04,234



Number of years’ purchase = 3

Goodwill = Weighted Average Profit X Number of years’ purchase
Goodwill = 1,04,234 X 3
Goodwill  = 3,12,702

 

 



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 20 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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