Question

8. Madhu and Vidhi are partners sharing profits in the ratio of 3: 2. They decided to admit Manu as a from 1st April, 2021 on the following terms:

i)Manu will be given 2/5th share of the profit.

ii) Goodwill of the firm will be valued at two years' purchase of three years' normal average profit of the firm
.
Profits of the previous three years ended 31st March, were:

2021-Profit 30,000 (after debiting loss of stock by fire 40,000).

2020-Loss 80,000 (includes voluntary retirement compensation paid 1,10,000).

2019-Profit 1,10,000 (including a gain (profit) of 30,000 on the sale of fixed assets).

Calculate the value of goodwill.​

Answer 1

GIVEN : Profits of last three year ; 2019 = 1,10,000 ; 2020 = 80,000 ; 2021 = 30,000

TO FIND :  Goodwill of the firm

SOLUTION :

As there first we will calculate normal profit ,normal profit is that profit which is free from any adjustments.

2019

Normal Profit = 1,10,000 - 30,000

                      = 80,000

As sale of fixed asset is not the part of regular business so it will be excluded.

2020

As in this year firm is occuring loss of 80,000 which includes retiremnet compensation so will exclude that .

Normal Profit = (80,000) - 1,10,000

                     = 30,000

2021

As in this year loss of stock of fire is also include and it is not the part of normal business so we will add the amount that was firstly excluded.

Normal Profit = 30,000 + 40,000

                        = 70,000

So , Normal Profit of three years = 80,000 + 30, 000 + 70,000

                                                       = 1,80,000

Now we will calculate average profit.

Average Profit = $\frac{profit of three years }{number of years }$

                      = $\frac{1,80,000}{3}$

                        = 60,000

Goodwill = Average Profit  × Two year purchase

                 =  60,000 × 2

                  = 1,20,000

Goodwill of the firm is 1,20,000 .

Answer 2

Answer:

Goodwill of the firm is 1,20,000

Explanation:

As per the data given in the question,

We have,

in year 2019, Normal Profit:

(including a gain (profit) of 30,000 on the sale of fixed assets).

$= 1,10,000 - 30,000\\= 80,000$

In year 2020, Normal Profit:

(voluntary retirement compensation paid 1,10,000).

$= (80,000) - 1,10,000\\= 30,000$

In year 2021, Normal Profit:

(after debiting loss of stock by fire 40,000)

$= 30,000 + 40,000\\= 70,000$

Now, total Normal Profit of three years:

= 80,000 + 30, 000 + 70,000

= 1,80,000

So,Average Profit = 60,000

As we know,

$Goodwill = Average\: Profit \times Two\: year \:purchase$

$= 60,000 \times 2\\= 1,20,000$

Hence, Goodwill of the firm is 1,20,000

#SPJ2