Find the Goodwill of the firm on the basis of two year's purchase of the weighted average profit of the last 4 years. The profit of the last 4 years were: 2013-20000
Answers
Answer:
Here, we need to find out the goodwill on the basis of weighted average profit. But before finding out the weighted average profit, we need to make some adjustments to the profits of the previous and current year.
Year 2014-15 2015-16 2016-17 2017-18
Profits 1,01,000 1,24,000 1,00,000 1,40,000
Add:Major repairs 30,000
Less: Depreciation @ 10% ( 1,000) (2900) (2,610)
Less:Cl. stock (12,000)
Add:Op.stock 12,000
Less:Management Exp (24,000) (24,000) (24,000) (24,000)
Less: capital profit (1000)
Total 77,000 1,16,000 85,100 113390
Weights 1 2 3 4
Total 77,000 2,32,000 2,55,300 4,53,560
Weighted average profit = (77,000+2,32,000+2,55,300+4,53,560)/10
= 1,01786
Notes:- Major repairs to be capitalized in the year 2015-16. Depreciation for 4 months to be charged in the year 2015-16 and then full depreciation for the year 2016-17 and 2017-18.
Closing stock overvalued by 12,000,thus profit of 2015-16 to be reduced. Opening stock for the year 206-17 undervalued,hence profit to be increased.