Q. 2. X purchased the business of Y frorn 1st April, 2019.

For this purpose

goodwill is to be valued at 100% of the average annual profits of the last four years.
The profits shown by rs business for the last four years were :
Year ended (f)
31st March, 2016 Profit 1,00,000 (after debiting loss of stock by fire
~50,000)
'' 2017 Loss 1,50,000 (includes voluntary retirement
compensation paid t80,000)
', 2018 Profit 1,50,000
'' 2019 Profit 2,00,000
Verification of books of accounts revealed the following :
(i) During the year ended 31st March, 2017, a machine got destroyed in accident
and f60,000 was written off as loss in Profit & Loss Account.
(ii) On 1st July 2017, Two Computers costing ~ 40,000 each were purchased and
were debited to Travelling Expenses Account on which depreciation is to be
charged @ 10% p.a. on Straight Line Method.
Calculate the value of goodwill.
[Ans. Goodwill f 1,39,000.]
Hint. Profit for the year ended 31st March 2018 t2,24,000 and for 2019 ~ 1,92,000.
 strati.on 5 (Average Profit Method when Past Adjustments are Made).
v and Kush are partners sharing profits equally. They admit Shubh into partnership for equal
are. Goodwill was agreed to be valued at two years' purchase of average profit of last four
ars. Profits for the last four years were:
Year Ended t
31st March, 2016 70,000;
31st March, 2017 1,00,000;
31st March,2018 55,000 .(Loss);
31st March,2019 1,45,000.
e books of account of the firm revealed as follows:
. The firm had abnormal gain off 10,000 during the year ended 31st March, 2016.
• The firm incurred abnormal loss off 20,000 during the year ended 31st March, 2017.
• Repairs to car amounting to t 50,000 was wrongly debited to vehicles on 1st May, 2017.
Depreciation was charged on vehicles @ 10% on Straig}J.t Line Method.
alculate the value of Goodwill.
~ lustrati on 10. · ·
Calcula te the goodwil l of a firm on the basis of three years' purchase of the weighte d average
profit of the l~st four years. Profits of these four years ended 31st March, were:
Year Ended . 31st March,201 6 3 Jst March, 2017 Ill
31st March, 2018 31st March, 2019
I
'
Profit m I'

' '"
f

I ( I
40,400 r r I;,, 49,600 ,. ·, 40,000 60,000
The weights assigned to each year ended 31st March, are: 7016-1; 2017-2; 2018-3 and 2019-4.
You are provide d with the followin g addition al informat ion:
(i) On 31st March, 2018, a majqr plant repair was underta ken for ~ 12,000 which was
charged to revenue . The said sum is to be capitalis ed for goodwil l calculat ion subject
, ' >
to adjustm ent of" deprecia tion of 10% p.a. on Reducin g Balance Method .
(ii) The Closing Stock for the year en~e.d 31st March, 2017 was overvalu ed by t 4,800.
(iii) To cover manage ment cost an annual ch~ge of~ 9,600 should be made for the purpose
of goodwi ll y aluation .
oo,hoill: Co1tct·pl 1111,I Motlr of Vnl11,ltio11 2.21

ustration 18 (Calc11latio11 of Cnpilnl E111ployed, Average Profil and Valualion of Goodwill).

a\ancc Sheet of Grand Sales as at 3 lst March, 2019 was as follows:
'{ Assets ~
-- 1,00,000
Furniture
2,50,000 Computers 3,00,000
aruna 2,50,000 5,00,000 Investments (Trade) 1,50,000
undry Creditors 2,50,000 Stock 1,50,000
i\\s Payab\e 50,000 Sundry Debtors 2,00,000
ank Overdraft 2,00,000 Bills Receivable 20,000
Cash in Hand 80000
10,00,000 10,00,000

Average profit of the firm for the year was~ 1,75,000. Calculate the value of goodw ill of the firm
by Super Profit Metho d at 2 years' purcha se of Super Profit, if the Norma l Rate of Return is 20%.
Illustration 24. ~
From the foll owi ng Bal anc e She et of Vin od Ent erp rise
s as at 31st Ma rch , 201 9, calc ula te the
goo dwi ll by cap ital isat ion of Sup er Pro fits , if the nor mal rate of retu rn is 20% of the
value of
Capital Em plo yed and Ave rag e Pro fit is ~ 1,50,000:
Liabilities Assets

Computers 1,50,000
Capital Ncs:
Furniture 50,000
Vinod 2,00,000
3,00,000 5,00,000 Goodwill 1,50,000
Vimal
3,00,000 Investments 2,00,000
Reserves
2,00,000 Sundry Debtors 5,00,000
Bank Overdraft
3,00,000 Stock 2,50,000
Sundry Creditors
Outstanding Expenses 50,000 Cash in Hand 50,000
13,50,000 13,50,000