Calculate the Goodwill of a Firm on the Basis of three Years’ Purchase of the Weighted Average Profit of the Last Four Years. The Appropriate Weights to Be Used and Profits
Calculate the goodwill of a firm on the basis of three years’ purchase of the weighted average profit of the last four years. The appropriate weights
Calculate the goodwill of a firm on the basis of three years’ purchase of the weighted average profit of the last four years. The appropriate weights to be used and profits are:
On a scrutiny of the accounts, the following matters are revealed:
(i) On 1st December, 2017, a major repair was made in respect of the plant incurring ₹ 30,000 which was charged to revenue. The said sum is agreed to be capitalised for goodwill calculation subject to adjustment of depreciation of 10% p.a. on Reducing Balance Method.
(ii) The closing stock for the year 2016-17 was overvalued by ₹ 12,000.
(iii) To cover management cost, an annual charge of ₹ 24,000 should be made for the purpose of goodwill valuation.
(iv) On 1st April, 2016, a machine having a book value of ₹ 10,000 was sold for ₹ 11,000 but the proceeds were wrongly credited to Profit and Loss Account. No effect has been given to rectify the same. Depreciation is charged on machine @ 10% p.a. on reducing balance method.
![]()
| Year | 2015-16 | 2016-17 | 2017-18 | 2018-19 |
| Profits (₹) | 1,01,000 | 1,24,000 | 1,00,000 | 1,40,000 |
| Weights | 1 | 2 | 3 | 4 |
(i) On 1st December, 2017, a major repair was made in respect of the plant incurring ₹ 30,000 which was charged to revenue. The said sum is agreed to be capitalised for goodwill calculation subject to adjustment of depreciation of 10% p.a. on Reducing Balance Method.
(ii) The closing stock for the year 2016-17 was overvalued by ₹ 12,000.
(iii) To cover management cost, an annual charge of ₹ 24,000 should be made for the purpose of goodwill valuation.
(iv) On 1st April, 2016, a machine having a book value of ₹ 10,000 was sold for ₹ 11,000 but the proceeds were wrongly credited to Profit and Loss Account. No effect has been given to rectify the same. Depreciation is charged on machine @ 10% p.a. on reducing balance method.
| Particulars | 2015-16 | 2016-17 | 2017-18 | 2018-19 |
| Profits | 1,01,000 | 1,24,000 | 1,00,000 | 1,40,000 |
| Repair Capitalised | +30,000 | |||
| Depreciation | (1,000) | (2,900) | ||
| Overvaluation of Closing Stock | (12,000) | 12,000 | ||
| Management Cost | (24,000) | (24,000) | (24,000) | (24,000) |
| Sale Proceeds Wrong Depreciation | (10,000) | 900 | 810 | |
| Adjusted Profits | 77,000 | 78,000 | 1,17,900 | 1,13,910 |
| Weights | 1 | 2 | 3 | 4 |
| Product | 77,000 | 1,56,0000 | 3,53,700 | 4,55,640 |
Join the conversation