Question

X and Y are partners sharing profits and losses in the ratio of 4:3. They agree to

admit Z as partner for 1/5th share. For this purpose. The goodwill of the firm is to be

calculated on the basis of 3 years’ purchase of last four years average profits. The

profits for the last four years were:

2015 - ₹70,000 (after allowing interest on investment of ₹5,000); 2016 – 25000 (after

charging loss of ₹7,000 on sale of Plant); 2017 - ₹61,000 and 2018 - ₹45,000.

The following additional information is provided:

(i) On 01-07-2016, the firm had purchased a computer for ₹30,000 and it was debited to

stationery expenses. Depreciation is to be charged on Computer @ 10% p.a. on the

diminishing balance method.

(ii) The closing stocks of 2016 and 2017 were overvalued by ₹3,000 and ₹2,000

respectively.
(iii) To cover the operating cost, an annual charge of ₹4,500 should be made for the

purpose of goodwill valuation.


Calculate goodwill of the firm when every year books closes on 31st December. ​

Answer 1

Answer:

Goodwill= Average profit × number of year purchase

year Profit

2015 70000 -5000 -4500=60500

2016 25000+7000+30000-1500-3000-4500=53000

2017. 61000-2850+3000-2000-4500=54650

2018. 45000-2565+2000-4500=39935

Total profit of last four years after adjustment

= 208085

Average profit = 208085/4= 52021.25

Goodwill = 52021.25 ×3= 156063.75