(Average Profit Method when Past Adjustments are Made).
Om, Shanti and Namo are partners sharing profits and losses equally. They agree 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. Profits for the past five years were:

On 1st April, 2018, 5 cycles costing Rs. 20,000 were purchased and were wrongly debited to Travelling Expenses. Depreciation on cycles was to be charged @ `25%` Calculate value of good will.

Explanation

Calculation of Normal Profit:
`{:("Year Ended",,"Normal Profit/(Loss) (Rs.)"),("31st March, 2015",," 30,000"),("31st March, 2016",," 70,000"),("31st March, 2017",,"1,00,000"),("31st March, 2018",,"1,40,000"),("31st March, 2019",,ul("1,05,000")" (Loss)"("Note")),("Total Profit",,ulul("2,35,000")):}`
Average Profit `=("Total Normal Profit")/("Number of Years")="RS. 2,35,000"//5="Rs. 47,000" `
Goodwill `="Average Profit"xx"Number of Years' Purchase" `
` " " ="Rs 47,000" xx 4= "Rs. 1,88,000." `
Note:
`{:("Calculation of Adjusted Loss for the year ended 31st March, 2019",Rs.),("Loss for the year ended 31st March, 2019", "1,20,000"),("Less: Cost of Cycles wrongly debited to Profit and Loss A/C", ul(" 20,000")),(,"1,00,000"),("Add: Depreciation@ "25% " on Rs. 20,000 (cycles)",ul(" 5,000")),("Loss for the year",ulul("1,05,000")):}`