Calculate goodwill of a firm on the basis of three year’ purchase of the weighted average profits of the last four years. The profit of the last four years were: 2012 Rs. 20,200, 2013 Rs. 24,800, 2014 Rs. 20,000 and 2015 Rs. 30,000. The weights assigned to each year are : 2012 – 1, 2013 – 2, 2014 – 3 and 2015 – 4. You are supplied the following information:
1. On September 1, 2014 a major plant repair was undertaken for Rs. 6,000, which was charged to revenue. The said sum is to be capitalised for goodwill calculation subject to adjustment of depreciation of 10% p.a. on reducing balance method.
2. The Closing Stock for the year 2013 was overvalued by Rs. 2,400.
3. To cover management cost an annual charge of Rs. 4,800 should be made for purpose of goodwill valuation.

Explanation

Weight Average Profit = Rs. `(2,19,280)/(10) = Rs. 21,928`
Goodwill = Rs, `21,928 xx 3 = Rs. 65,784`
Notes to Solution
`{:((i)"Depreciation of" 2014,=,10% of Rs.6000 "for 4 months"),(,=,Rs.600xx 10//100 xx 4//12 = Rs 200),((ii)"Depreciation of" 2015,=,10% of Rs. 6000- Rs. 200 "for one year"),(,=,Rs. 5800 xx 10//100 +Rs. 580):}`
(iii) Closing Stock of 2014 will become opening stock for the year 2015.