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CBSE Class 12-commerce Answered

Divya purchased Jyoti's business with effect from 1st April, 2019. Profits shown by Jyoti's business for the last three financial years were: 2016-17: ₹1,00,000 (including an abnormal gain of ₹ 12,500). 2017-18: ₹1,25,000 (after charging an abnormal loss of ₹ 25,000) 2018-19: ₹1,12,500 (excluding ₹ 12,500 as insurance premium on firm's property - now to be insured). Calculate the value of firm's goodwill on the basis of two years' purchase of the average profit of the last three years  
Asked by doshid10 | 15 Mar, 2019, 12:29: AM
answered-by-expert Expert Answer
The information given in the question related to the past years' profits are to be adjusted for the non-operating or abnormal items before calculating the value of goodwill:
 
Adjusted Profits are as follows:
2016-17 = 100000 - 12500 (abnormal gain included is now removed) = 87500
2017-18 = 125000 + 25000 (abnormal loss charged now added) = 150000
2018-19 = 112500 - 12500 (insurance premium being an expense will now be reduced from the profits) = 100000
 
Average of Profits = (87500 + 150000 + 100000) / 3 = 112500
 
Goodwill = Average Profits x No. of years' purchase 
             = 112500 x 2
             = 225000
Answered by Surabhi Gawade | 15 Mar, 2019, 10:14: AM

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