16. Goodwill of Indian Snacks, a partnership firm, is 10,00,000 calculated on 2.5 year's purchase of average profits of last years. What is the value of X? (P.S.E.B. Sample Paper, Oct, 2021) FY 2021 2020 2019 Profits 7,00,000 x 3,00,000 (a) 65,00,000 (b) 4,00,000 (c) 2,00,000 (d) 15,00,000
Answers
Given:
- The goodwill of a firm on the basis of 2.5 years' purchase of the average profits of the last 3 years is Rs 10,00,000.
- The profits for the last few years were: 2021 - Rs 7,00,000; 2020 - x, 2019 - Rs 3,00,000.
To find: The value of 'x', i.e., the profit for the year 2020.
Answer:
Goodwill = Number of years' purchase × Average profit
We have the goodwill and the number of years' purchase. Substituting them in formula,
Rs 10,00,000 = 2.5 × Average profit
Rs 10,00,000 ÷ 2.5 = Average profit
Rs 4,00,000 = Average profit
We have the average profit.
Average profit = Total profit ÷ Number of years
Total profit = Sum of the profits of all years
Total profit = Rs 7,00,000 + x + Rs 3,00,000
Total profit = Rs 10,00,000 + x
Number of years = 3
Substituting these values in the formula for average profit,
Rs 4,00,000 = (Rs 10,00,000 + x) ÷ 3
Rs 12,00,000 = Rs 10,00,000 + x
Rs 12,00,000 - Rs 10,00,000 = x
Rs 2,00,000 = x
Therefore, the value of 'x', or, the value of 2020's profit is (c) Rs 2,00,000.
Answer:
PROFIT = 2,00,000
AVERAGE PROFIT = 4,00,000
Explanation:
GOOD WILL OF THE FIRM = 10,00,000
GOOD WILL = AVERAGE PROFIT × NO: OF YEAR PURCHASED
LET AVERAGE PROFIT BE 'Y'
'Y' × 2.5 = 10,00,000
Y = 10,00,000 ÷ 2.5 = 4,00,000
AVERAGE PROFIT = 4,00,000
LET THE MISSING PROFIT BE 'X'
AVERAGE PROFIT = SUM OF PROFITS ÷ NO: OF YEARS
4,00,000 = 10,00,000 + X ÷ 3
12,00,000 = 10,00,000 + X
X = 2,00,000