Question

Calculate the value of goodwill as on 1st Jan 2007 on the basis of three years’ purchases of average profits of the last five years profits. The p + L for the years were 2001 – 30000 (profit) 2002 – 40000 (loss) 2003 – 92000 (profit) 2004 – 55000 (profit) 2005 – 70000 (profit) 2006 – 90000(profit) During 2002 profit on sale of fixed assets amounted to Rs 2000, during 2004 amounted to Rs 5000, and in 2006 loss on sale of fixed asset amounted to Rs 5000.​

Answer 1

Explanation:

Calculation of goodwill :

(1) Average profit = Total profit/ No. of years

Average profit = Rs. (800000 + 1500000 + 1800000 - 400000 + 1300000) / 5

Average profit = Rs. 5000000/5

Average profit = Rs. 1000000

Goodwill = Average profit * No. of year's purchase

Goodwill = Rs. 1000000 * 3

Goodwill = Rs.3000000

Answer 2

Answer:

Explanation:

Concept:

Goodwill arises while a organization acquires some other complete enterprise. The quantity of goodwill is the price to buy the enterprise minus the honest marketplace price of the tangible belongings, the intangible belongings that may be identified, and the liabilities received with inside the buy.

Given:

Average profit of  last 5 years

                                      a1= Rs. 30000

                                       a2=Rs. 40000 + 2000 = 42000

                                       a3=Rs. 92000

                                       a4=Rs. 55000 + 5000 = 60000

                                       a5=Rs. 90000 - 5000 = 85000

Find:

        To find the value of goodwill as on 1st January 2007

Solution:

      Goodwill= Average profit× Number of years

      average profit= a1+a2+a3+a4+a5/5

                              = 30000+42000+92000+60000+85000/5

                              = 309000/5

   Average profit   = Rs. 61800

              Goodwill = 61800×3

                              =185400

The value of goodwill as on 1st Jan 2007 on the basis of three years’ purchases is Rs.185400

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