goodwill is to be valued at two years purchase of 3 years normal average profit of the firm .The profit for 2014-15, ₹20000(including insurance claim received of ₹40000).The loss for 2015-16 ,₹8000 (includin voluntary retirement compensation paid ₹110000 ) .The profit for 2016-17 ,₹105000(including profit of ₹25000 on the sale of a fixed asset . calculate the value of goodwill by average profit method.
Answers
Answer:
Goodwill = Rs. 1,08,000
Explanation:
For the year 2014-15, profit = Rs. 20,000
Less: Abnormal Income, ie insurance claim received = Rs. 40,000
This means, normal profit for the year 2014-15 is loss of Rs. 20,000.
Loss for 2015-16, loss = Rs, 8,000
Add: Abnormal expense, ie voluntary retirement compensation = Rs. 1,10,000
This means, normal profit for 2015-16, is Rs. 1,02,000.
For the year 2016-17, profit = Rs. 1,05,000
Less: Abnormal Gain, ie gain on sale of fixed asset = Rs. 25,000
This means, normal profit for 2016-17 is Rs. 80,000.
Therefore, Average profit for 3 years, ie 2014-15, 15-16 and 16-17, is
It is given that number of years purchase = 2 years.
Hence, Goodwill = No. of years purchase * Avg Profit for 3 yrs
Goodwill = 2*54,000 = Rs. 1,08,000
Given :-
Good will is to be valued at two years purchase of 3 years normal average profit of the firm .The profit for 2014-15, ₹20000(including insurance claim received of ₹40000).The loss for 2015-16 ,₹8000 (includin voluntary retirement compensation paid ₹110000 ) .The profit for 2016-17 ,₹105000(including profit of ₹25000 on the sale of a fixed asset .
To Find :-
Value of goodwill by average profit method
Solution :-
Year 2014-15
Profit = 40,000 - 20,000
Profit = 20,000
Year 2015-16
Profit = 110000 - 8000
Profit = 1,02,000.
Year 2016-17
Profit = 105000 - 25000
Profit = 80000
Avg. profit = 102000 + 80000 - 20000/3
Avg. profit = 182000 - 20000/3
Avg. profit = 162000/3
Avg. profit = 54000
Goodwill = 1,08,000