Question

three years
[Ans.: Goodwill-* 2,25,000.]
& Abhay, Babu and Ch
equal share of profit. For
purchase of average pr.
Babu and Charu are partners sharing profits and losses equally. They agree to admit Daman for
are of profit. For this purpose, the value of goodwill is to be calculated on the basis of four years
of average profit of last five years. These profits for the year ended 31st March, were:
2015
2016
Year
Profit/(Loss) ()
2015
2016
2017
2018
2019
1,50,000
3,50,000
5,00,000
7,10,000 (5,90,000)
1st April, 2018, a car costing 1,00,000 was purchased and debited to Travelling Expenses Account,
which depreciation is to be charged @ 25%. Interest of 10,000 on Non-trade Investments is credit
to Income for the year ended 31st March, 2018 and 2019.
Calculate the value of goodwill after adjusting the above.
[Ans.: Goodwill— 9,40,000.]
​

Answer 1

this is the perfect solution

Answer 2

Answer:

The value of goodwill after adjusting the above exists ₹ 9,40,000.

Explanation:

Step 1

Normal Profits for the year ended 31st March, 2018 = Total Profits + Purchase of car wrongly debited - Depreciation on Car - Income from Non-trade Investments

= ₹ ( 7,10,000 + 1,00,000 - 25,000 - 10,000 )

= ₹ 7,75,000

Step 2

Normal Profits for the year ended 31st March, 2019:

= ( Total Loss + Income from Non - Trade Investments )

= ₹ (5,90,000 + 10,000)

= ₹ 6,00,000

Step 3

Average Profits $=\frac{\text { Normal Profits from 31 st March, } 2015 \text { to 31 st March,2019 }}{5}$

Average Profits

= ₹$\left(\frac{1,50,000+3,50,000+5,00,000+7,75,000+6,00,000}{5}\right)$

= ₹ 2,35,000

Step 4

Goodwill = Average Profits for last 5 years $\times$ Number of years of purchase

= ₹ (2,35,000 $\times$ 4)

= ₹ 9,40,000

Therefore, the value of goodwill after adjusting the above exists ₹ 9,40,000.

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