Volume-1 | Chapter- 3 | | Question: 11 to 15 | Ts grewal solution 2019-20 | Class-12th

Page No 3.30:

Question 11:

Sumit purchased Amit's business on 1st April, 2019. Goodwill was decided to be valued at two years' purchase of average normal profit of last four years. The profits for the past four years were:

Year Ended

31st March, 2016

31st March, 2017

31st March, 2018

31st March, 2019

Profits ( `)

80,000

1,45,000

1,60,000

2,00,000

Books of Account revealed that:
(i) Abnormal loss of
 ` 20,000 was debited to Profit and Loss Account for the year ended 31st March, 2016.
(ii) A fixed asset was sold in the year ended 31st March, 2017 and gain (profit) of  ` 25,000 was credited to Profit and Loss Account.
(iii) In the year ended 31st March, 2018 assets of the firm were not insured due to oversight. Insurance premium not paid was  ` 15,000.
Calculate the value of goodwill.

Answer:

Goodwill=Average Profit×No. of years' purchase               

Goodwill =1,41,250×2= ` 2,82,500


Working Notes:

WN: 1 Calculation of Normal Profits

Year

Profit/(Loss) ( `)

Adjustment

Normal Profit ( `)

31 March, 2016

80,000

20,000

1,00,000

31 March, 2017

1,45,000

(25,000)

1,20,000

31 March, 2018

1,60,000

(15,000)

1,45,000

31 March, 2019

2,00,000

-

2,00,000

 

5,65,000

 

WN: 2 Calculation of Average Profit

Average Profit=Total Profit for past given years Number of Years =5,65,0004= ` 1,41,250
 

Page No 3.30:

Question 12:

Geet and Meet are partners in a firm. They admit Jeet into partnership for equal share. It was agreed that goodwill will be valued at three years' purchase of average profit of last five years. Profits for the last five years were:  

Year Ended

31st March, 2015

31st March, 2016

31st March, 2017

31st March, 2018

31st March, 2019

Profits ( `)

90,000 (Loss)

1,60,000

1,50,000

65,000

1,77,000

Books of Account of the firm revealed that:
(i) The firm had gain (profit) of 
` 50,000 from sale of machinery sold in the year ended 31st March, 2016. The gain (profit) was credited in Profit and Loss Account.
(ii) There was an abnormal loss of 
 ` 20,000 incurred in the year ended 31st March, 2017 because of a machine becoming obsolete in  accident.
(iii) Overhauling cost of second hand machinery purchased on 1st July, 2017 amounting to  ` 1,00,000 was debited to Repairs Account.  Depreciation is charged @ 20% p.a. on Written Down Value Method.
Calculate the value of goodwill.

Answer:

Particulars

Year

31st Mar., 2015

31st Mar., 2016

31st Mar., 2017

31st Mar., 2018

31st Mar., 2019

Profit/Loss

(90,000)

1,60,000

1,50,000

65,000

1,77,000

Less: Gain on Sale of Machinery

 

50,000

 

 

 

Add: Abnormal Loss

 

 

20,000

 

 

Add: Overhaul of existing machinery

 

 

 

 

 

Debited to Repairs A/c

 

 

 

1,00,000

 

Less: Depreciation @20% p.a.

 

 

 

15,000

17,000

Normal Profit/Loss

(90,000)

1,10,000

1,70,000

1,50,000

1,60,000

 

 

 

 

 

 

Average Profits=Normal profits from the year ended 31st March,2015 to 31st March,20195= `-90,000+1,10,000+1,70,000+1,50,000+1,60,0005= `1,00,000

Goodwill=Average profits of the last 5 years × No. of years of Purchase= `(1,00,000×3)= `3,00,000

Page No 3.30:

Question 13:

Profits of a firm for the year ended 31st March for the last five years were:

Year Ended

31st March, 2015

31st March, 2016

31st March, 2017

31st March, 2018

31st March, 2019

Profits ( `)

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, 2015, 2016, 2017, 2018 and 2019.

Answer:

Year

Profit

×

Weight

=

Product

2015

20,000

×

1

=

20,000

2016

24,000

×

2

=

48,000

2017

30,000

×

3

=

90,000

2018

25,000

×

4

=

1,00,000

2019

18,000

×

5

=

90,000

Total

 

 

15

 

3,48,000

 

 

 

 

 

 

Weighted Average profit = total profit of past given years/ Total of Weighted

 Weighed Average profit =3,48,000/15=23,200

Number of years’ purchase = 3

Goodwill= Weighted Average profit × no. of purchases years’

Goodwill=  23,200×3 =69,600

 

Page No 3.30:

Question 14:

A and B are partners sharing profits and losses in the ratio of 5 : 3. On 1st April, 2019, C is admitted to the partnership for 1/4th share of profits. For this purpose, goodwill is to be valued at two years' purchase of last three years' profits (after allowing partners' remuneration). Profits to be weighted 1 : 2 : 3, the greatest weight being given to last year. Net profit before partners' remuneration were: 2016-17 :  ` 2,00,000; 2017-18 :  ` 2,30,000; 2018-19 :  ` 2,50,000. The remuneration of the partners is estimated to be  ` 90,000 p.a. Calculate amount of goodwill.

Answer:

Year

Profit before Partners’ Remuneration

Partners’ Remuneration

=

Profit after Partners’ Remuneration

2016-17

2,00,000

90,000

=

1,10,000

2017-18

2,30,000

90,000

=

1,40,000

2018-19

2,50,000

90,000

=

1,60,000

 

Year

Profit

×

Weight

=

Product

2016-17

1,10,000

×

1

=

1,10,000

2017-18

1,40,000

×

2

=

2,80,000

2018-19

1,60,000

×

3

=

4,80,000

 

Total

 

6

 

8,70,000

 

 

 

 

 

 

Weighted Average Profit = Total Product of ProfitsTotal of Weightsor, Weighted Average Profit = 8,70,0006 =  ` 1,45,000

Goodwill= Weighted Average profit × no. of purchases years’

Goodwill=  1,45,000×2 =2,90,000

 

Page No 3.30:

Question 15:

Raman and Daman are partners sharing profits in the ratio of 60 : 40 and for the last four years they have been getting annual salaries of  ` 50,000 and  ` 40,000 respectively. The annual accounts have shown the following net profit before charging partners' salaries:
Year ended 31st March, 2017 −  ` 1,40,000; 2018 −  ` 1,01,000 and 2019 −  ` 1,30,000.
 On 1st April, 2019, Zeenu is admitted to the partnership for 1/4th share in profit (without any salary). Goodwill is to be valued at four years' purchase of weighted average profit of last three years (after partners' salaries); Profits to be weighted as 1 : 2 : 3, the greatest weight being given to the last year. Calculate the value of Goodwill.

Answer:

Year

Profits before charging Salary

( `)

Profits after charging Salary

( `)

Weights

Weighted Profits

( `)

31st March, 2017

1,40,000

1,40,000- 90,000= 50,000

1

50,000

31st March, 2018

1,01,000

1,01,000- 90,000= 11,000

2

22,000

31st March, 2019

1,30,000

1,30,000- 90,000= 40,000

3

1,20,000

Total

6

1,92,000

Weighted Average Profits=Total of Weighted Profits Total Weights= `1,92,000/6= `32,000

Goodwill=Weighted Average Profits × No. of years of Purchase    = `(32,000×4)=  `1,28,000