X purchased the business of Y from 1st April, 2019. For this purpose
goodwill is to be valued at 100% of the average annual profits of the last four years.
The profits shown by Y's business for the last four years were :
Year ended
31st March, 2016 Profit 1,00,000 (after debiting loss of stock by fire
350,000)
2017 Loss 1.50,000 (includes voluntary retirement
compensation paid 80,000)
2018 Profit 1,50,000
2019 Profit 2,00,000
Verification of books of accounts revealed the following:
(1) During the year ended 31st March, 2017, a machine got destroyed in accident
and 60,000 was written off as loss in Profit & Loss Account
(ii) On 1st July 2017. Two Computers costing 340,000 each were purchased and
were debited to Travelling Expenses Account on which depreciation is to be
charged @ 10% p.a. on Straight Line Method.
Calculate the value of goodwill.
Answers
Explanation:
2016 profit :100000
add: abnormal loss 50000
=150000
2017 profit : (150000)
add: voluntary retirement compensation 80000
add: machinery wrongly debited to P&L a/c 60000
=(10000)
2018 profit: 150000
add: cost of computer wrongly debited P&L a/c 80000
less: depreciation on computers 6000
=224000
2019 profit: 200000
less: depreciation on computers 8000
=192000
weighted average profits = total of product of profit / total of weights
= 556000/4
=139000 Ans
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Answer:
2016(profit)
Abnormal loss added
100,000+50,000(loss of stock)
=150,000
2017(loss)
Abnormal loss added
(150,000)+80,000+60,000
=10,000
2018(profit)
{Depreciation on computers
40,000× 9/12×10/100=6000}
[Computers are purchased on 1st July 2017 and depreciation charged 10%]
Abnormal loss added
150,000+80,000-6000
=2,24,000
2019(profit)
Depreciation
200,000-8000
=1,92,000
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