Abhay, Babu, and Charu are partners sharing profits and losses equally. They agree to admit Daman for an equal share of profits. For this purpose, the value of goodwill is to be calculated on the basis of four years’ purchase of the average profit of the last five years.

These profits for the year ended 31st March were:

Year Profit/Loss (₹)
2019 1,50,000
2020 3,50,000
2021 5,00,000
2022 7,10,000
2023 (5,90,000)

On 1st April 2022, a car for ₹ 1,00,000 was purchased and debited to Travelling Expenses Account, on which depreciation is to be charged @ 25% p.a.

The interest of ₹ 10,000 on Non-Trade Investments is credited to Income for the year ended 31st March 2022 and 2023.

Calculate the value of goodwill after adjusting the above.

[Goodwill – ₹ 9,40,000]

Anurag Pathak Changed status to publish April 1, 2024
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