Luv and Kush are partners sharing profits equally. They admit Shubh into partnership for equal share.Goodwill was agreed to be valued at two years' purchase of average profit of last four years.profits
for the last four years were:
years.
Year Ended
31st March, 2016
31st March, 2017
31st March, 2018
31st March, 2019
Normal Profit/(Loss) ()
70,000;
1,00,000;
55,000 (Loss);
1,44,000.
The books of account of the firm revealed as follows:
1. Firm had abnormal gain of * 10,000 during the year ended 31st March, 2016.
2. Firm incurred abnormal loss of * 20,000 during the year ended 31st March, 2017.
3. Repairs to car amounting to * 50,000 was wrongly debited to vehicles on 1st June, 2017
Depreciation was charged on vehicles @ 12% p.a. on Straight Line Method.
Calculate the value of Goodwill.
Answers
Answer:
answer of your question
Answer:
Rs 1,15,000 will be the value of goodwill for the firm.
Explanation:
Given,
Normal Profit/(Loss) :
70,000;
1,00,000;
55,000 (Loss);
1,44,000.
Depreciation = 50,000 x 10/100
= 5000
STEP 1:
FOR THE YEAR 2016
70,000 - 10,000
(abnormal gain of 10,000, Abnormal gain is always subtracted because it happened abnormally. )
=60,000/-
STEP 2:
FOR THE YEAR 2017
1,00,000 + 20,000
=120,000
( Abnormal loss is always added because it is not a recurring nature loss)
STEP 3:
FOR THE YEAR 2018
(55,000) + (45000)*
= (1,00,000)
*45,000 = -50,000 + 5000 (depreciation)
= -45,000
STEP 4:
FOR THE YEAR 2019
144000 +1000
=145000 + 5000 (depreciation)
=1,50,000
STEP 5 :
AVERAGE PROFIT
= number of years of profit / number of years
= 60,000 + 120000+(- 1,00,000)+ 150,000 / 4
= 60,000 + 120,000 - 100,000 + 150,000/4
=230,000 / 4
=57,500
average profit = 57,500
STEP 6 :
Goodwill was agreed to be valued at two years' purchase of average profit of last four years' profits
therefore,
=57500 x 2
= 1,15,000
Therefore, 1,15,000 will be the goodwill at two years' purchase of average profit of last four years' profit.
#SPJ2