# Ques. Following information is available about the business of a firm: 1. Profits: in 2013, Rs 40,000; in 2014, Rs 50,000; in 2015, Rs 60,000; 2. Non-recurring income of Rs 1,000 is included in the profits of 2014; 3. Profits of 2013 have been reduced by Rs 6,000 because goods were destroyed by fire; 4. Goods haven't been insured but it is thought to insure them in future. The insurance premium is estimated at Rs 400 per year; 5. Reasonable remuneration of the proprietor of business is Rs 6,000 per year, but is hasn't been taken into account for calculation of above mentioned profits; 6. Profits of 2015 include Rs 5,000 income on investment. Goodwill is agreed to be valued at 2 year's purchase of weighted average profits of the past 3 years. The appropriate weights to be used are: 2013- 1 2014- 2 2015- 3 Calculate the value of goodwill.

Dear student,

 Particulars 2013 Rs 2014 Rs 2015 Rs profits 40000 50000 60000 less: non recurring income (1000) add: loss by fire (abnormal loss) 6000 less: Insurance expenses (400) (400) (400) less: remuneration (6000) (6000) (6000) less: income from investment (5000) Adjusted profit 39600 42600 48600

 CALCULATION OF WEIGHTED AVERAGE PROFITS
 YEAR PROFIT Rs WEIGHT PRODUCT 2013 39600 1 39600 2014 42600 2 85200 2015 48600 3 145800 6 270600

weighted average profit=

goodwill at 2 year's purchase=

Regards!!

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