Question 6 Chapter 3 of Class 12 Part - 1 VK Publication

Question 6 Chapter 3 of Class 12 Part – 1

Table of Contents

The solution of Question 6 Chapter 3 of Class 12 Part – 1: –

Usha Publication – Accountancy PSEB (Class 12) – Volume I – Solution

Usha Publication – Accountancy PSEB (Class 12) – Volume II – Solution

6. It was agreed to calculate the value of goodwill of a partnership firm at two years’ purchase of the weighted average profits of the past four years. The appropriate weights to be used to each year ended on 31st March are: 2015-1; 2016-2; 2017-3, 2018-4.
The profits for these years ended on 31st March are: 2015 Rs. 60,400; 2016 Rs. 69,600. 2017 Rs. 60,000; and 2018 Rs. 61,600.
On a scrutiny of the accounts the following revaluations are made:
(i) On 1st December, 2016 a major repair was made in respect of the plant incurring Rs. 12,000 which amount was charged to revenue. The paid Sum is agreed to be capitalised for goodwill calculation subject to adjustment of depreciation of 10% p.a. on reducing balance method.
(ii) The closing stock for the year 31st March, 2016 was overvalued by Rs. 4,800.
(iii) To cover management cost an annual charge of Rs. 9,600 should be made for the purpose of goodwill valuation.
Compute the value of goodwill.

The solution of Question 6 Chapter 3 of Class 12 Part – 1: –

Calculation of Adjusted Profit

Particulars	31st March, 2015	31st March , 2016	31st March , 2017	31st March, 2018
Profit	60,400	69,600	60,000	61,600
Less: Charge for Management Cost	9,600	9,600	9,600	9,600
	50,800	60,000	50,400	52,000
Add: Capital expenditure charged revenue	–	–	–	–
	50,800	60,000	62,400	52,000
Less: Depreciation (note provided)	–	–	400(1)	1,160(2)
	50,800	60,000	62,000	50,840
Less: Overvaluation of Closing Stock	–	4,800	–	–
	50,800	55,200	62,000	50,840
Add: Overvaluation of Opening Stock	–	–	4,800	–
Adjusted Profit	50,800	55,200	66,800	50840

Calculation of Weighted Average Profit

Year	Profit	Weight	Product
31st March 2015	50,800	1	50,800
2016	55,200	2	1,10,400
2017	66,800	3	2,00,400
2018	50,840	4	2,03,360
		10	5,64,960

Weighted Average Profit	=	5,64,960
		10

Goodwill at 2 years’ purchase= 56,496 x 2= Rs. 1,12,992

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Working Notes:
1. Depreciation for the year ending 31st March, 2017 = 10% of Rs. 12,000 for 4 months
12,000×10/100×4/12= Rs. 400
2. Depreciation for the year ending 31st March, 2018 = 10% of Rs. 11,600 (i.e., 12,000-500)
11,600×10/100 = Rs. 1,160.
3. Closing Stock of 2016 automatically becomes the Opening Stock of 2017.

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