# Question 6 Chapter 3 of Class 12 Part – 1 VK Publication

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

Question 6 Chapter 3 of Class 12 Part – 1

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: –

 Particulars 31st March, 2015 Advertisement-X Advertisement-Y 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

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.

Comment if you have any questions.

Also, Check out the solved question of previous Chapters: –