Question 1:
Goodwill is to be valued at three years' purchase of
four years' average profit. Profits for last four years ending on 31st March of
the firm were:
2021 − `
12,000; 2022 − `
18,000;2023 − `
16,000; 2024 − `
14,000.
Calculate amount of Goodwill.
Answer:
Goodwill=
Average profit × no. of purchases years’
Average profit = total profit of past given
years/number of years
Average profit
=12,000+18,000+16,000+14,000/4=15,000
Number of years’ purchase = 3
Goodwill= Average profit × no. of purchases
years’
Goodwill= 15,000 × 3=45,000
Question 2:
Profits for the five years ending on 31st March, are
as follows:
Year 2020 − `
4,00,000; Year 2021 − ` 3,98,000; Year 2022 − ` 4,50,000; Year 2023 − ` 4,45,000 and Year 2023 − ` 5,00,000.
Calculate goodwill of the firm on the basis of 4 years' purchase of 5 years'
average profit.
Answer:
Goodwill=Average Profit×Number of Years' Purchase
Average Profits = Total Profit÷Number of Years
Average Profits =
4,00,000+3,98,000+4,50,000+4,45,000+5,00,000÷5
Average Profits =
21,93,000÷5= ` 4,38,600
Goodwill =4,38,600×4= ` 17,54,400
Question 3:
Purav and Purvi
are partners in a firm sharing profits and losses in the ratio of 2 : 1. They decide to take Parv
into partnership for 1/4th share on 1st April, 2024. For this purpose, goodwill
is to be valued at four times the average annual profit of the previous four or
five years, whichever is higher. The agreed profits for goodwill purpose of the
past five years are:
Year |
2020 |
2021 |
2022 |
2023 |
2024 |
Profits (
`) |
14,000 |
15,500 |
10,000 |
16,000 |
15,000 |
Calculate
the value of goodwill.
Answer:
Calculation of Average Profit for Five Years
Year |
Profit |
2014 –
15 |
14,000 |
2015 –
16 |
15,500 |
2019 –
17 |
10,000 |
2018 –
18 |
16,000 |
2019 –
19 |
15,000 |
Total
Profit |
70,500 |
Average Profit for Five
Years=70,500/5=14,100
Calculation of Average Profit for Four Years
Year |
Profit |
2015 –
16 |
15,500 |
2019 –
17 |
10,000 |
2018 –
18 |
16,000 |
2019 –
19 |
15,000 |
Total
Profit |
56,500 |
Average Profit for Five
Years=56,500/4=14,125
Average
Profit of four years is taken to compute the value of goodwill of the firm.
This is because Average Profit of four years is more than the Average
Profit of five years.
Goodwill= Average profit × no. of
purchases years’
Goodwill=
14,125 ×4 =56,500
Question 4: Asin and Shreyas were partners sharing profits and losses in the ratio of 2:1. They admitted Shyam as a partner for 1/5th share in profits. For this purpose Goodwill of the firm was to be valued on the basis of three years' purchase of last five years' average profit. Profits for the last five years ended 31st March, were:
Year |
2020 |
2021 |
2022 |
2023 |
2024 |
Profit (`) |
1,25,000 |
1,00,000 |
1,87,500 |
(62,500) |
1,25,000 |
Calculate Goodwill of the firm after adjusting the following:
Profit of 2020-20 was calculated after charging 25,000 for abnormal loss of goods by fire.
Answer;
Goodwill= Average profit × no. of purchases years’
=Sum of normal
profit × no. of purchases years’/total
no. of years
=1,25,000+1,00,000+25,000+1,87,500+(62,500)+1,25,000/5×3
(purchases years’)
=3,00,000
Question 5: Madhu and Vidhi are partners sharing profts in the ratio of 3:2. They decided to admit Manu as a partner from 1st April, 2024 on the following terms
(i) Manu will be given 2/5th share of the profit.
(ii) Goodwill of the firm will be valued at two years' purchase of three years' normal average profit of the firm.
Profits of the previous three years ended 31st March, were
2022-Profit `30,000 (after debiting loss of stock by fire `40,000).
2021-Loss `80,000 (includes voluntary retirement compensation paid `1,10,000).
2020-Profit `1,10,000 (including a gain (profit) of 30,000 on the sale of fixed assets).
Calculate the value of goodwill.
Answer;
Goodwill= Average profit ×
no. of purchases years’
=Sum of three years Profit
× no. of purchases years’/Total no. of
years
=(first years profit+normal loss)+(Second
years loss+Retirement compensation)+(Third years’ profit – gain on sale of
fixed assets)×2year/3year
=(30,000+40,000)+(-80,000+1,10,000)+1,10,000-30,000)×2/3
=1,20,000
Ts Grewal Solution 2024-2025
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Class 12 / Volume – I