Question

1. Calculate goodwill of a firm at the 3 year’s purchase of average profits of last 5 Yrs.

Balance of their profits

were:- 2014-

15 2015-16 2016-17 2017-18 2018-

19 1,40,000 1,90,000

2,30,000 2,50,000 3,00,000 Following adjustments are to be

made:

a) A machinery purchased on 1 Dec. 2016 costing Rs.30,000 was wrongly charged to

revenue. Depreciation @ 10% p.a. on written done value to be adjusted.

e) Closing stock of 2015-16 is undervalued by Rs.20,000.

f) A machinery is sold on 31 Dec. 2018 at Rs.40,000 (Book value Rs.45,000), its sale

proceed credited to P&L a/c Depreciation @ 10% p.a. on

written done value to be adjusted.​

Answer 1

Answer:

Answer

Here, we need to find out the goodwill on the basis of weighted average profit. But before finding out the weighted average profit, we need to make some adjustments to the profits of the previous and current year.

Year 2014-15 2015-16 2016-17 2017-18

Profits 1,01,000 1,24,000 1,00,000 1,40,000

Add:Major repairs 30,000

Less: Depreciation @ 10% ( 1,000) (2900) (2,610)

Less:Cl. stock (12,000)

Add:Op.stock 12,000

Less:Management Exp (24,000) (24,000) (24,000) (24,000)

Less: capital profit (1000)

Total 77,000 1,16,000 85,100 113390

Weights 1 2 3 4

Total 77,000 2,32,000 2,55,300 4,53,560

Weighted average profit = (77,000+2,32,000+2,55,300+4,53,560)/10

= 1,01786

Notes:- Major repairs to be capitalized in the year 2015-16. Depreciation for 4 months to be charged in the year 2015-16 and then full depreciation for the year 2016-17 and 2017-18.

Closing stock overvalued by 12,000,thus profit of 2015-16 to be reduced. Opening stock for the year 206-17 undervalued,hence profit to be increased.