(Average Profit Method when Past Adjustments are Made).
Luve and Kush are partners sharing profits equally. They admit Shubh into partnership for equal share. Goodwill was agreed to be valued at two years' purchase of average profit of last four years. Profits for the last four years were:
`{:("Year Ended",,"Normal Profit/(Loss) (Rs.)"),("31st March, 2016",," 70,000,"),("31st March, 2017",,"1,00,000,"),("31st March, 2018",," 55,000(Loss),"),("31st March, 2019",,"1,45,000".):}`
The books of Account of the firm revealed as follows:
1. Firm had abnormal gain of Rs. 10,000 during the year ended 31st March, 2016.
2. Firm incurred abnormal loss of Rs. 20,000 during the year ended 31st March, 2017.
3. Repairs to car amounting to Rs. 50,000 was wrongly debited to vehicles on 1st May, 2017.
Depreciation was charged on vehicles @`10%` on Straight Line Method.
Calculate the value of Goodwill.

Options

A. Rs. 110000
B. Rs. 125000
C. Rs. 115000
D. Rs. 120000

Answer

C

Explanation

Average Profit`=("Total Normal Profit")/("Number of Years")=("Rs. 2,23,000")/(3)=` Rs. 57,500
Value of Goodwill = Average Profit `xx` No. of Years' Purchase
` " " ` = Rs. 57,500 `xx` 2 = Rs. 1,15,000.
*Adjustments:
`{:("1. Repairs expenses that should have been debited to Profit and Loss Account",Rs.),(" as expense but accounted as capital expenditure. Loss to increase by Rs.50,000", "(50,000)"),("2. Depreciation wrongly debited to Profit and Loss Account for the", ),("Years ended 31st March, 2018",ul(" 5,000")),("Adjustmetnt to be made in profit for the year ended 31st March, 2018" ,ulul("(45,000)")),("3. Adjustment to be made for depreciation for the year ended",),(" 31st March, 2019("10%"of Rs. 50,000)"," 5,000"):}`