THE EXISTING PARTNERS
3.11
ILLUSTRATION 8.
It was agreed to calculate the value of goodwill of a firm at three years' purchase
of the weighted average profits of the past four years. The appropriate weights to be
used to each year ended on 31st March are : 2012-1; 2013-2; 2014 - 3;
2015 - 4.
The profits for these years ended on 31st March are : 2012 20,200; 2013
24,800; 2014 $20,000; and 2015 *30,000.
On a scrutiny of the accounts the following matters are revealed :-
(i) On 1st December, 2013 a major repair was made in respect of the plant
incurring 6,000 which amount was charged to revenue. The paid sum is
agreed to be capitalised for goodwill calculation subject to adjustment of
depreciation of 10% p.a. on reducing balance method.
(ii) The closing stock for the year ending on 31st March 2013 was over-valued by
2,400.
(iii) To cover management cost an annual charge of 4,800 should be made for the
purpose of goodwill valuation.
Compute the value of goodwill.
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