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Average Profit Method

While calcula...

Question

While calculating goodwill by average profits method, any abnormal income of a year should be ___out of the net profit of that year.

A

None of these

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B

multiplied

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C

deducted

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D

added

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Solution

The correct option is C
deducted

Abnormal income of a year should be deducted out of the net profit of that year.

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Similar questions

While calculating goodwill by weighted average profits methods, total profits multiplied by weights are divided by___

Q. Manbir and Nimrat are partners and they admit Anahat into partnership. It was agreed to value goodwill at three tears' purchase on Weighted Average Profit Method taking profits of last five years. Weights assigned to each year as 1, 2, 3, 4 and 5 respectively to profit for the year ended 31st March, 2014 to 2108. The profit for these years were: ₹ 70,000, ₹ 1,40,000, ₹ 1,00,000, ₹ 1,60,000 and ₹ 1,65,000 respectively.
Scrutiny of books of account revealed following information:
(i) There was an abnormal loss of ₹ 20,000 in the year ended 31st March, 2014.
(ii) There was an abnormal gain (profit) of ₹ 30,000 in the year ended 31st March, 2015.
(iii) Closing Stock as on 31st March, 2017 was overvalued by ₹ 10,000.
Calculate the value of goodwill.

Q. Manbir and Nimrat are partners and they admit Anahat into partnership. It was agreed to value goodwill at three years' purchase on Weighted Average Profit Method taking profits of last five years. Weights assigned to each year as 1, 2, 3, 4 and 5 respectively to profits for the year ended 31st March, 2015 to 2019. The profits for these years were: ₹ 70,000, ₹ 1,40,000, ₹ 1,00,000, ₹ 1,60,000 and ₹ 1,65,000 respectively.
Scrutiny of books of account revealed following information:
(i) There was an abnormal loss of ₹ 20,000 in the year ended 31st March, 2015.
(ii) There was an abnormal gain (profit) of ₹ 30,000 in the year ended 31st March, 2016.
(iii) Closing Stock as on 31st March, 2018 was overvalued by ₹ 10,000.
Calculate the value of goodwill.

Profits of last four years are 12,000, 16,000, 23,000, 27,000 respectively. Calculate goodwill based on average profits of 2 years purchase

Q. If normal profit is

R s .50000

, average profit is

R s .75000

than calculate Goodwill for

2

years of purchase under super profit method_______.

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