Question

The profits disclosed by Chaitra Ltd. for the past 5 years were as follows:
2010-11 Rs 40000 including abnormal profit Rs5000
2011-12 Rs 50000 after charging abnormal loss Rs 10000
2012-13 Rs 45000 excluding Rs. 5000 insurance premium
2013-14 Rs 60000
2014-15 Rs 80000 including profit on sale of building Rs. 20000
You are required to calculate the value of goodwill at 2 years purchase of average profits.​

Answer 1

Answer:

Explanation:

Calculation of adjusted profits

Particulars                    2010-11    2011-12     2012-13   2013-14   2014-15

Profits                          40,000      50,000    45,000    60,000    80,000

(-) Abnormal profit       (5,000)                                                                  

(+) Abnormal loss                            10,000                                            

(-) Insurance premium                                     (5000)                          

(-) Profit on sale                                                                               (20,000)

Adjusted profit              35,000         60,000    40,000   60,000     60,000

Adjusted average profit = sum of adjusted profit / no. of years

= 2,55,000 / 5 = Rs 51,000

Value of Goodwill = Adjusted average profit x years of purchase

= Rs 51,000 x 2 = Rs 1,02,000