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Weighted Average Profits Method

profit method...

Question

profit method of calculating goodwill is more representative of the future profits and gives a more accurate amount of goodwill.

A

Gross

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B

Average

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C

Weighted average

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D

Actual

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Solution

The correct option is C Weighted average
Weighted average profit method of calculating goodwill is more representative of the future profits and gives a more accurate amount of goodwill as higher weights are assigned for latest years.

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Formula for calculation of goodwill according to average profits method is:

Q. Give the formula for calculation Goodwill by 'Capitalisation of Super Profit Method'.

Q. Ram, Laxman and Bharat are partners sharing profits in the ratio of 3 : 2 : 1. Goodwill is appearing in the books at a value of ₹ 1,80,000. Laxman retires and at the time of his retirement, goodwill is valued at ₹ 2,52,000. Ram and Bharat decided to share future profits in the ratio of 2 : 1. The Profit for the first year after Laxman's retirement amount to ₹ 1,20,000. Give the necessary Journal entries to record goodwill and to distribute the profit. Show your calculations clearly.

Q. A, B and C are partners yeah profits sharing ratio of 4 : 3: 2.B retires and Goodwill of Rs. 10,800 was valued. If A & C share future profits in the ratio of 5 : 3, then the amount of goodwill to be shared between A and C will be _______.

Q. A and B are sharing profits and losses in the ratio of 4 :1. C is admitted as a new partner for 1/3rd share of profits for which he pays Rs. 30,000 as goodwill. If A and B agree to share future profits equally, then the amount of goodwill to be credited to A would be :

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Weighted Average Profits Method

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