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Standard XII

Accountancy

Hidden Goodwill

The following...

Question

The following particulars are available in respect of the business carried on by a partnership firm:
Trading Results:
$2011$ Loss Rs. $5, 000$
$2012$ Loss Rs. $10, 000$
$2013$ Profit Rs. $75, 000$
$2014$ Profit Rs. $60, 000$
You are required to compute the value of goodwill on the basis of $5$ years purchase of average profit.

R s .1, 25, 000

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R s .1, 50, 000

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R s .10, 000

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R s .1, 20, 000

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Solution

The correct option is B $R s .1, 50, 000$
Calculation of goodwill :
1. Average profit = Total profit/ No. of years
Average profit = Rs. [-5000 + (-10000) + (75000) + (60000)]/ 4
Average profit = Rs. 120000/ 4
Average profit = Rs. 30000
2. Goodwill = Average profit * No. of years purchase
Goodwill = Rs. 30000 * 5 years
Goodwill = Rs. 150000

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