(Weighted Average Profit Method when Past adjustments are Made )
Calculate goodwill of the firm on the basis of three years' purchase of weighted average profit of the last four years. Profits of these four years ended 31st March were:

The weights assigned to each year 31st March, are: 2016 - 1, 2017 - 2, 2018 - 3 and 2019 - 4.
You are provided with the following additional information:
(i) On 31st March, 2018, a major plant repair was undertaken for Rs. 12,000 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.
(ii) The Closing Stock for the year ended 31st March, 2017 was overvalued by Rs. 4,800.
(iii) To cover management cost an annual charge of Rs. 9,600 should be made for the purpose of goodwill valuation.

Explanation

Weighted Average Profit`=("Total of Weighted Profit")/("Total of Weights")=("Rs. 4,39,600")/(10)=` Rs. 43,960.
` " Goodwill" = "Weighted Average Profit" xx "No. of Years' Purchase " `
` " " ="Rs. 43,960 " xx 3 = "Rs. 1,31,880".`
Working Notes:
1. Depreciation on Plant for the year ended 31st March, 2018 is Nil as the major repairs were carried out on 31st March, 2018 itself.
2. Depreciation on Plant for the year ended 31st March, 2019 = `10%` of Rs. 12,000 = Rs. 1,200.
3. Closing Stock of the year ended 31st March 2017 will become Opening Stock of the year ended 31st March, 2018.