Question

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Q. 2 (A). X Ltd. proposed to purchase the business carried on by Y Ltd. Goodwill
for this purpose was agreed to be valued at 3 year's purchase of the weighted average
profits of the past four years. The appropriate weights to be used are :
2011-12 : 1; 2012-13 : 2; 2013-14 :- 3; 2014-15 : 4.
The profits for these years were : 2011-12 : 381,000; 2012-13 :- 395,000;
2013-14 :- 1,20,000 and 2014-15:- 1,50,000.
On a scrutiny of the accounts, the following were revealed :
(1) On Sept. 30, 2013, a major repair was made in respect of machinery incurring
320,000 which amount was charged to revenue. The said sum is agreed to be
capitalised for goodwill calculation subject to adjustment of depreciation of
10% per annum by the reducing balance method.
(2) The closing inventory for the year 2012-13 was undervalued by 5,000.
(3) To cover management expenses an annual charge of 10,000 should be made
for the purpose of goodwill valuation.
Compute the value of goodwill of the firm. Accounts are closed on 31st March
each year.

Answer 1

Answer:

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