Question : O, M and R are partners sharing profits and losses equally. They agree to admit Dev for equal share. For this purpose, goodwill is to be valued at four years purchase of average profit of last five years. Profits for the past five years were:
| 31st March,2016 | 31st March,2017 | 31st March,2018 | 31st March,2019 |
31st March,2020 |
|
Profit/(Loss) |
||||
| (Rs.) 30,000 | 70,000 | 1,00,000 | 1,40,000 |
(1,20,000) |
On 1st April, 2019, 5 cycles costing Rs. 20,000 were purchased and were wrongly debited to travelling expenses. Depreciation on cycles was to be charged @ 25% p.a. value of goodwill will be
Option 1: 1,88,000
Option 2: 1,08,000
Option 3: 2,00,000
Option 4: 3,20,000
Correct Answer: 1,88,000
Solution : Answer = 1,88,000
|
Calculation of Normal Profit: Year-Ended Normal Profit/(Loss) (Rs.) |
|
| 31st March, 2016 | 30,000 |
| 31st March, 2017 | 70,000 |
| 31st March, 2018 | 1,00,000 |
| 31st March, 2019 | 1,40,000 |
| 31st March, 2020 | (1,05,000) (Loss) (Note) |
Total Normal Profit 2,35,000
Average Profit = = Rs. 2,35,000/5 = Rs. 47,000
Goodwill = Average Profit × Number of Year Purchase = Rs. 47,000 × 4 = Rs. 1,88,000.
Calculation of Adjusted Loss for the year ended 31st March 2020: Rs.
Loss for the year ended 31st March 2020 = 1,20,000
Less: Cost of Cycles wrongly debited to Profit and Loss A/c = (20,000)
= 1,00,000
Add: Depreciation @ 25% p.a. on Rs. 20,000 (cycles) = 5,000
Loss for the year =
1,05,000
Hence, the correct option is 1.
