Question

Anu,Baby and Chetan are partners in a firm sharing profit and loss equally. They decide to take Deep into partnership from 1st April, 2019 for 1/5th share in the future profits. For thise purpose, goodwill is to be valued at 100percent of the average annual profit of the previous three or four years, whichever is higher. The annual profits for the purpose of goodwill for the past four years were: 31st march 2019 2,88,000 31st March 2018 1,81,800 31st march2017 1,87,200 31st march 2016 2,53,200

Answer 1

Hope it helps.........

Answer 2

Given:

• Anu, Baby and Chetan are partners in a firm, sharing profits and losses in equal ratio.
• Deep is admitted into the firm for 1/5th share.
• The goodwill is to be valued at 100 percent of the average profit of the previous 3 or 4 years, whichever is higher.
• The profits for the past 4 years are Rs 2,53,200, Rs 1,87,200, Rs 1,81,800 and Rs 2,88,000.

To find: The value of goodwill.

Answer:

Calculation of the average profit for the previous 3 years:

Average profit = Total profit ÷ Number of years

• Total profit = Rs 2,88,000 + Rs 1,81,800 + Rs 1,87,200 = Rs 6,57,000
• Number of years = 3

Average profit = Rs 6,57,000 ÷ 3

Average profit = Rs 2,19,000

Calculation of the average profit for the previous 4 years:

Average profit = Total profit ÷ Number of years

• Total profit = Rs 2,88,000 + Rs 1,81,800 + Rs 1,87,200 + Rs 2,53,200 = Rs 9,10,200
• Number of years = 4

Average profit = Rs 9,10,200 ÷ 4

Average profit = Rs 2,27,550

Since the average profit for the previous 4 years is higher, it will be considered to calculate the goodwill.

Goodwill = Average profit × 100%

Goodwill = Rs 2,27,550 × 100%

Goodwill = Rs 2,27,550

Therefore, the value of goodwill is Rs 2,27,500.