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
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