Bzziii.com

Home
class-12-accountancy

Sumit Purchased Amit’s Business On 1st April, 2019. Goodwill Was Decided - Accountancy

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 yea
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 Ended31st March, 201631st March, 201731st March, 201831st March, 2019
Profits (₹)80,0001,45,0001,60,0002,00,000

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.



Goodwill = Average Profits of last years `\times` No. of years Purchase

Goodwill = Rs. 1,41,250 `\times` 2

= Rs. 2,82,500.

Working Notes:

WN: 1 Calculation of Normal Profits




YearProfit/LossAdjustmentNormal Profit
31 March, 201680,00020,0001,00,000
31 March, 20171,45,000(25,000)1,20,000
31 March, 20181,60,000(15,000)1,45,000
31 March, 20192,00,000–2,00,000



5,65,000

WN: 2 Calculation of Average Profit

Average Profit = `" Total Profits for Previous given years"/"No of Years"`

= `[5,65,000]/4`

= Rs. 1,41,250

Chapter-3 Goodwill: Nature and Valuation-TS.Grewal



Hello, welcome to the GovtCareerAssam blog! I'm Dipankar Baruah, the author and admin, here to provide you valuable information on government careers in Assam.