Aman purchase Bhartendus business with effect from 1st April 2019.it was agreed that the firms Goodwill will be valued at 2 years purchase of average normal profit of the last 3 year. Profit of Bhartendus business for the last 3 year end date 31st March:
2017: ₹100000 (including an abnormal gain of rupees 10000)
2018: ₹ 110000 (after charging and abnormal loss of rupees 20000)
2019: ₹85000 (including interest of rupees 5000 from non trade investment)
Calculate value of the firms goodwill
Answers
Answer:
Rs. 2,00,000
Explanation:
Goodwill = Actual Average Profit x Number of years' purchase
Working Note 1 (Calculation of Average Normal Profit) :
Year 2017:
Normal Profit = 1,00,000 - 10,000 (Abnormal Gain)
= 90,000
Year 2018:
Normal Profit = 1,10,000 + 20,000 (Abnormal Loss)
= 1,30,000
Year 2019:
Normal Profit = 85,000 - 5,000 (Interest from Non-trade Investment)
= 80,000
Average Normal Profit = Total Normal Profit / Number of years
= (90,000 + 2,00,000 + 80,000) / 3
= 3,00,000 / 3
= 1,00,000
Number of years' purchase = 3
Therefore,
Goodwill = Average Normal Profit x Number of years' purchase
= 1,00,000 x 2
= 2,00,000
Hence, Goodwill of the firm is valued at Rs. 2,00,000