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Accountancy Goodwill

Luve and Kush are admitting Shubh into their partnership, agreeing on goodwill valued at two years' purchase of average profits from the last four years. The calculation of goodwill considers various adjustments, including abnormal gains and losses, repairs, and overvalued stock. The final calculated goodwill amounts to Rs. 131,880 based on the weighted average profit method.

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60 views2 pages

Accountancy Goodwill

Luve and Kush are admitting Shubh into their partnership, agreeing on goodwill valued at two years' purchase of average profits from the last four years. The calculation of goodwill considers various adjustments, including abnormal gains and losses, repairs, and overvalued stock. The final calculated goodwill amounts to Rs. 131,880 based on the weighted average profit method.

Uploaded by

mahadevan.legal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Luve and Kush are partners sharing profits equally.

They admit Shubh into partnership for equal


share. Goodwill was agreed to be valued at two years' purchase of average profit of last four years.
Profits for the last four years were:
Year EndedNormal Profit/(Loss) (Rs.)31st March, 201670,000,31st March, 20171,00,000,31st
March, 201855,000(Loss),31st March, 20191,45,000.
The books of Account of the firm revealed as follows:
1. Firm had abnormal gain of Rs. 10,000 during the year ended 31st March, 2016.
2. Firm incurred abnormal loss of Rs. 20,000 during the year ended 31st March, 2017.
3. Repairs to car amounting to Rs. 50,000 was wrongly debited to vehicles on 1st May, 2017.
Depreciation was charged on vehicles @10% on Straight Line Method.
Calculate the value of Goodwill.

ANSWER ; 115000

Weighted Average Profit Method when Past adjustments are Made )

Calculate goodwill of the firm on the basis of three years' purchase of weighted average profit of the
last four years. Profits of these four years ended 31st March were:

(Weighted Average Profit Method when Past adjustments are Made ) Calculate goodwill of the firm
on the basis of three years' purchase of weighted average profit of the last four years. Profits of these
four years ended 31st March were: The weights assigned to each year 31st March, are: 2016 - 1,
2017 - 2, 2018 - 3 and 2019 - 4. You are provided with the following additional information: (i) On
31st March, 2018, a major plant repair was undertaken for Rs. 12,000 which was charged to
revenue. The said sum is to be capitalised for goodwill calculation subject to adjustment of
depreciation of 10% p.a. on Reducing Balance. Method. (ii) The Closing Stock for the year ended
31st March, 2017 was overvalued by Rs. 4,800. (iii) To cover management cost an annual charge of
Rs. 9,600 should be made for the purpose of goodwill valuation.

The weights assigned to each year 31st March, are: 2016 - 1, 2017 - 2, 2018 - 3 and 2019 - 4.

You are provided with the following additional information:

(i) On 31st March, 2018, a major plant repair was undertaken for Rs. 12,000 which was charged to
revenue. The said sum is to be capitalised for goodwill calculation subject to adjustment of
depreciation of

10

p.a. on Reducing Balance. Method.

(ii) The Closing Stock for the year ended 31st March, 2017 was overvalued by Rs. 4,800.

(iii) To cover management cost an annual charge of Rs. 9,600 should be made for the purpose of
goodwill valuation.

ANSWER : 439600/10

43960*3
131880

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