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Byju's Answer
Standard X
Mathematics
VAT
Abhay, Babu a...
Question
Abhay, Babu and Charu are partners sharing profits and losses equally. They agree to admit Daman for equal share of profit. For this purpose, the value of goodwill is to be calculated on the basis of four years' purchase of average profit of last five years. These profits for the year ended 31st March, were:
Year
2015
2016
2017
2018
2019
Profit/(Loss) (₹)
1,50,000
3,50,000
5,00,000
7,10,000
(5,90,000)
On 1st April, 2018, a car costing ₹ 1,00,000 was purchased and debited to Travelling Expenses Account, on 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.
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Solution
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
Normal Profits for the year ended 31st March, 2019:
=
(
Total
Loss
+
Income
from
Non
-
Trade
Investments
)
=
₹
(
5
,
90
,
000
+
10
,
000
)
=
₹
6
,
00
,
000
Average
Profits
=
Normal
Profits
from
31
st
March
,
2015
to
31
st
March
,
2019
5
Average
Profits
=
₹
1
,
50
,
000
+
3
,
50
,
000
+
5
,
00
,
000
+
7
,
75
,
000
+
6
,
00
,
000
5
=
₹
2
,
35
,
000
Goodwill
=
Average
Profits
for
last
5
years
×
No
.
of
years
of
purchase
=
₹
(
2
,
35
,
000
×
4
)
=
₹
9
,
40
,
000
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Q.
Profits of a firm for the year ended 31st March for the last five years were:
Year ended
31st March, 2014
31st March, 2015
31st March, 2016
31st March, 2017
31st March, 2018
Profit (₹)
20,000
24,000
30,000
25,000
18,000
Calculate value of goodwill on the basis of three years' purchase of Weighted Average Profit after assigning weights 1, 2, 3, 4 and 5 respectively to the profits for years ended 31st March, 2014, 2015, 2016, 2017 and 2018.