Question

49. Mahesh and Suresh are partners and they admit Naresh into partnership. They agreed to value goodwill
at three years' purchase on 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 Ended
| 31st March, 2015
31st March, 2016
31st March, 2017 | 31st March, 2018
31st March, 2019
Profits ()
1,25,000
1,40,000
1,20,000
55,000
2,57,000
Scrutiny of books of account revealed the following:
0 A second-hand machine was purchased for 5,00,000 on 1st July, 2017 and 1,00,000 were spent to
make it operational. * 1,00,000 were wrongly debited to Repairs Account. Machinery is depreciated
@ 20% p.a. on Written Down Value Method.
6) Closing Stock as on 31st March, 2018 was undervalued by 50,000.
O Remuneration to partners was to be considered as charge against profit and remuneration of
20,000 p.a. for each partner was considered appropriate.
Calculate the value of goodwill.
[Ans.: Goodwill - 3,75,000.]​

Answer 1

Goodwill = Rs. 3,15,000

Explanation:

Please find attached the picture for the working notes.

Weighted averaged profit = Total of profit product / total of weights

= 24,75,000 / 15

= Rs. 1,65,000

Weighted average profit adjusted = 1,65,000 - 60,000 = 1,05,000

60K is the remuneration to partners.

Goodwill = Weighted average profit adjusted * Number of years' purchased

 = 1,05,000 * 3  

 = Rs. 3,15,000