A and B are partners sharing profits equally. They agree to admit C for equal share. For this purpose goodwill is to be valued at 150% of the average annual profits of the last 5 year's profits.
Profits were :
`{:("Year ended",," Rs."),("31st March",2015,"40,000"),(" ,,",2016,"60,000"),(" ,,",2017,"1,00,000"),(" ,,",2018,"20,000 (Loss)"),(" ,,",2019,"1,50,000"):}`
It was observed that :
(1) During the year ended 31st March 2016, an asset of the original cost of Rs. 2,00,000 with book value of Rs. 1,50,000 was sold for Rs. 1,24,000. ,brgt (2) During the year ended 31st March, 2017, firm's assets were not insured due to oversight. Insurance premium being Rs. 20,000.
(3) On 1st April 2017, 2 Computer's costing Rs. 1,00,000 were purchased and were wrongly debited to Travelling Expenses. Depreciation on Computers was to be charged @ 20% p.a. on written down value basis.
Calculate the value of goodwill.

Explanation

Calculation of Adjusted Profits

Average Profit = `(40,000 + 86,000 + 80,000 + 60,000 + 1,34,000)/(5)`
`= (4,000)/(5)`= Rs. 80,000
Value of Goodwill = `80,000 xx (150)/(100) =` Rs. 1,20,000
Working Note :
(1) Depreciation on Computers for the year ended 31.3.2018 = 20% on Rs. 1,00,000 = Rs. 20,000
(2) Depreciation on Computers for the year ended 31.3.2019 :
20% on (Rs. 1,00,000 - Rs. 20,000) = Rs. 16,000