CHAPTER (2) —GOODWILL NATURE & VALUATION

MCQS
Q. NO. QUESTIONS
1 A and B are partners with capitals of Rs. 3,00,000 and Rs. 2,00,000 respectively. Normal rate
of return is 15% and goodwill calculated at 2 years purchase of super profits is valued at Rs.
1,00,000. What were the average profits of the firm?
(A) Rs.1,25,000 (B) Rs.1,75,000 (C) Rs.25,000 (D) Rs.60,000
2 At the time of admission of a new partner in the firm, the new partner compensates the old
partners for their loss of share in the super-profits of the firm for which he brings in an
additional amount which is known as ___________ .
(A)Premium for Goodwill (B) Capital (C) Super Profit (D) Average Profit
3 Average Profit of the firm is Rs.6,00,000. Total tangible Assets in the firm are Rs.28,00,000 and
Outside Liabilities are Rs.8,00,000. In the same type of business, the normal rate of return is
20% of the capital employed. Calculate the value of goodwill by Capitalisation of Super Profit
Method.
(a)Rs.10,00,000 (b)Rs.5,00,000 (c)Rs.2,50,000 (d)Rs.15,00,000
4 A business earned average profit of Rs.3,00,000 during the last few years. The normal rate of
return in the similar business is 10%.The total value of the assets and liabilities of the business
were Rs.22,00,000 and Rs.5,60,000 respectively. Calculate the value of the goodwill of the
firm by super profit method, if the goodwill is valued 2.5 years, purchase of super profit.
(a)Goodwill Rs.3,40,000.
(b) Goodwill Rs.2,40,000.
(c) Goodwill Rs.4,40,000.
(d) Goodwill Rs.5,40,000.
5 Tangible Assets of the firm are Rs.14,00,000 and outside liabilities are Rs.4,00,000. Profit of
the firm is Rs.1,50,000 and normal rate of return is 10%. The amount of Capital employed will
be
(a) Rs.10,00,000 (b) Rs.1,00,000 (c) Rs.50,000 (d) Rs.20,000
6 The average profits of the firm earned Rs.60,000 including abnormal gain of Rs.4,000. Firm had
a fixed assets of Rs.3,00,000 and Current assets of Rs.60,000 and creditors
Rs.1,40,[Link] goodwill of the firm based on 3 times of the super profits if the normal
rate of return is 10%.
(a) Goodwill Rs.69,000. (b) Goodwill Rs.1,02,000.
(c) Goodwill Rs.1,80,000. (d) Goodwill Rs.39,000.
7 A firm has earned average profits of the Rs.1,00,000 during the last few years and the normal
rate in similar business is 10%. Find the value of goodwill by :Capitalisation of average profit.
The firm has assets of Rs.10,00,000 and external liabilities Rs.1,80,000.
(a) Rs. 2,80000 (b) Rs.1,80,000 (c) Rs.3,80,000 (d) Rs.4,80,000
8 The profits earned by a business over the last 5 years are as follows Rs.12,000; Rs.13,000;
Rs.14,000: Rs.18,000 and Rs.2,000 (loss). Based on 2 years purchase of the last 5 years
profits, value of Goodwill will be :
(a) Rs.23,600 (b) Rs.22,000
(c) Rs.1,10,000 (d) Rs.1,18,000
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9 A business has earned Super profit of Rs.1,00,000during the last few years and Normal rate
of returns in 10% Calculate goodwill
(a) Rs.10,00,000 (b) Rs.54,000
(c) Rs.20,000 (d) Rs.36,000
10 Calculate the value of goodwill at 3 years' purchase of Super Profit, when: Capital employed
Rs.2,50,000; Average profit Rs.30,000 and normal rate of return is 10%.
(a) Rs.3000 (b) Rs.25,000
(c) Rs.30,000 (d) Rs.1 5,000
11 Goodwill of the firm on the basis of 2 years' purchase of average profit of the last 3 years is
Rs.25,000. Find average profit.
(a) Rs.50,000 (b) Rs.25,000
(c) Rs.10,000 (d) Rs.37,500
12 If super profit is zero or negative, it means that the actual average profit is less than or equal
to the normal profit
(a) True (b) False (c) Partially true (d) Can’t say
13 The average profit over the last five years was Rs.. 60000. The normal yield on capital
invested in such a business is estimated at 10% pa. Capital invested in the business is Rs..
500000. Amount of goodwill, it is based on 3 years purchase of last 5 years super profit will
be
(a) 1, 00,000 (b) 1, 80,000 (c) 30000 (d) 1, 50,000.
ASSERTION & REASONING
14 Assertion(A):The value of Goodwill calculated on Average profit Method and Super profit
Method is not the same
Reason (R): The value of Goodwill calculated on Average profit Method and Super profit
Method is not the same as the basis of valuation is different
In the context of the above two statements, which of the following is correct?
(a)Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
Assertion(A)
(b)Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
Assertion(A)
(c) Assertion(R) is true but the Reason(R) is false
(d)Assertion(R) is false but the Reason(R) is true
15 Assertion (A) : Goodwill is an intangible asset and is recognised as an asset only
when consideration is to be paid for it :
Reason (R) :AS-26 Intangible Assets prescribes to recognise goodwill as an asset only when
consideration has been paid for it.
In the context of above two statements which of the following correct ?
(a)Assetion (A) and REason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b)Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of
Assertion (A).
(c)Assertion (A) is correct but the REason (R) is not correct.
(d)Both Assertion (A) and Reason (R) are incorrect.
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16 If Goodwill is Rs.1,20,000, Average Profit is Rs.60,000 Normal. Rate of Return is10% on
Capital Employed Rs.4,80,000. Calculate Capitalized Value of the firm:-
(a) Rs.6,00,000 (b) Rs.5,00,000
(c) Rs.4,00,000 (d) Rs.7,00,000
17 Tangible Assets of the firm are Rs.14,00,000 and Outside liabilities are Rs.4,00,000, Profit of
the firm is Rs.1,50,000 and Normal Rate of Return is 10% Calculate Capital Employed
(a) Rs.10,00,000 (b) Rs.1,00,000
(c) Rs.50,000 (d) Rs.20,000
18 If Average Profit =Rs.1, 60,000, Actual Capital Employed = Rs.5,00,000. If rate of Normal Profit
= 20%. What is the amount of Super Profit?
( a) Rs.60,000 (b) Rs.1,00,000
(c) Rs.20,000 (d) Rs.80,000
19 Which of the following items are added to previous year’s profits for finding normal profits
for valuation of goodwill?
(a) Loss on sale of fixed assets (b) Loss due to fire, earthquake etc
(c) Undervaluation of closing stock (d) All of the above
20 The profits earned by a business over the last 5 years are as follows Rs.12,000; Rs.13,000;
Rs.14,000: Rs.18,000 and Rs.2,000 (loss). Based on 2 years purchase of the last 5 years
profits, value of Goodwill will be :
(a) Rs.23,600 (b) Rs.22,000
(c) Rs.1,10,000 (d) Rs.1,18,000
THREE MARKS QUESTIONS (03 MARKS)
1 The goodwill of a firm is valued at 3 years’ purchase of the average profits of last 3 years. The
profits of the last three years were :
Year Profit (Rs.)
2015 – 16 Rs.4,00,000 (including an abnormal gain of Rs. 50,000)
2016 – 17 Rs.5,00,000 (after charging an abnormal loss of Rs. 1,00,000)
2017 – 18 Rs.2,50,000
Calculate the amount of the goodwill.
2 Asha and Aditi are partners in a firm sharing profits and losses in the ratio of 3 : 2. They admit
Raghav as a partner for 1/4 th share in the profits of the firm. Raghav brings Rs. 6,00,000 as his
capital and his share of goodwill in cash. Goodwill of the firm is to be valued at two years’
purchase of average profits of the last four years. The profits of the firm during the last four
years are given below :
Year Profit (Rs.)
2013 – 14 3,50,000
2014 – 15 4,75,000
2015 – 16 6,70,000
2016 – 17 7,45,000
The following additional information is given :
(i) To cover management cost an annual charge of Rs. 56,250 should be made for the
purpose of valuation of goodwill.
(ii) The closing stock for the year ended 31.3.2017 was overvalued by Rs. 15,000.
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 Calculate the value of Goodwil showing the working notes clearly.
3 Followings are the profits of the firm for the last 3 years:
2022- Rs.40,000 including profits on sale of a land Rs.5,000.
2023- Rs.50,000 including Rs.10,000 loss on sale of Machinery.
2024- Rs.45,000 excluding Rs.5,000 payable for insurance premium.
Compute the value of goodwill of the firm on the basis of two years’ purchase of average profits
of the last three years.
4 The profits of the firm for last 5 years were as follows:
2010- Rs. 19,000,2011- Rs. 25,000, 2012- Rs.27,000,2013- Rs.30,000, 2014- Rs.33,000.
Calculate goodwill on the basis of 2 years’ purchase of weighted average profits. The weights
were 1,23,4 and 5 respectively.
5 A firm has earned average profits of the Rs.1,00,000 during the last few years and the normal
rate in similar business is 10%. Find the value of goodwill by :
Capitalisation of average profit.
The firm has assets of Rs.10,00,000 and external liabilities Rs.1,80,000.
FOUR MARKS QUESTIONS (04 MARKS)
1 Following information is available about the business of a firm:
(a) Profits: In 2013 Rs.40,000 , 2014 Rs.50,000 , 2015 Rs.60,000.
(b) Non-Recurring income of Rs. 4,000 & Loss on sale of furniture Rs.4,000 are included in the
profits of 2014.
(c) Profits of 2013 have been reduced by Rs.6,000 because goods were destroyed by fire.
(d) Goods have not been insured but it is thought them in future. The insurance premium is
estimated at Rs.400 per year.
(e) Reasonable remuneration of the proprietor of business is Rs.6,000 per year but it has not
been considered for calculation of above-mentioned profits.
(f) Profits of 2015 include Rs.5,000 interest on investment.
Goodwill is agreed to be valued at three year’s purchase of the weighted average profits of the
past three years. Assuming that accounts are closed at 31 st December each [Link]
appropriate weights to be used are :-
2103 :- 1 , 2014:- 2 , 2015:- 3.
2 Caculate Goodwill by the given information of X Ltd,
Balance Sheet
Laibilities Rs. Assets Rs.
Capital A/c Land & Buildings 1,50,000
Aman – 1,00,000 Goodwill 30,000
Bhaskar- 1,00,000 2,00,000 Investments (Trade) 50,000
General Reserve 90,000 Stock 50,000
Sundry Creditors 90,000 Sundry Debtors 70,000
Outstanding Expenses 10,000 Cash at bank 30,000
Advertisement Suspense 10,000

3,90,000 3,90,000

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 Average profit is Rs. 50,000 Normal rate of return is 10% find out Goodwill by Super profit
method by 2 years of no of purchase years.
3 Find the goodwill of affirm on the basis of two years’ purchase of the weighted average profit
of the last 4 years. The profits of the last 4 years were:2011- Rs.20,000, 2012-Rs. 30,000, 2013-
Rs. 25,000 ,2014-Rs.38,000 The weights assigned were 1,2,3,and 4 respectively Assuming that
accounts are closed at 31st December each year..
On scrutiny it was found that:
(a) On 1st January 2013 heavy repairs made on plant and Machinery amounting to Rs.8,000
was charged to revenue account. The said sum is agreed to be capitalised for goodwill
computation. This is subject to 10% depreciation on straight line method.
(b) The closing stock of 2012 and 2014 were overvalued by Rs.1,000 and 2,000 respectively.
(c) To cover the management cost an annual charge of Rs.3,000 should be made for
Goodwill valuation.
4 Compute of the firm on the basis of the last 3 years’ purchase of the weighted average profits
of last 4 years. The profits of the last 4 years were:
2011- Rs.25,000,2012-Rs.30,000, 2013- Rs.24,000, and 2014- Rs. 38,000.
The weights were 1, 2, 3, and 4. Following information is supplied to you:
(a) In 2013 a major repair was made in plant and Machinery to Rs.10,000 on 1 st July which
was charged to revenue account. The said sum is agreed to be capitalised for goodwill
computation subject to depreciation @10% p.a. on reducing balance method.
(b) The closing stock of 2012 was overvalued by Rs.3,000.
(c) Management cost is Rs.3,000 annual.
Assuming that accounts are closed at 31st December each year.
5 A firm has earned average profits of the Rs.1,00,000 during the last few years and the normal
rate in similar business is 10%. Find the value of goodwill by :
Capitalisation of Super profit.
The firm has assets of Rs.10,00,000 and external liabilities Rs.1,80,000.
6 Find the goodwill of affirm on the basis of two years’ purchase of the weighted average profit
of the last 4 years. The profits of the last 4 years were:
(a) 2021- Rs.20,000, 2022-Rs. 30,000, 2023- Rs. 25,000 ,2024-Rs.38,000 The weights assigned
were 1,2,3,and 4 respectively.
On scrutiny it was found that:
(a) On 1st January 2023 heavy repairs made on plant and Machinery amounting to
Rs.8,000 was charged to revenue account. The said sum is agreed to be capitalised for
goodwill computation. This is subject to 10% depreciation on straight line method.
(b) The closing stock of 2022 and 2024 were overvalued by Rs.1,000 and 2,000
respectively.
(c) To cover the management cost an annual charge of Rs.3,000 should be made for
goodwill valuation.
The Accounts are closed on 31st December each year

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 ANSWERS OF GOODWILL NATURE & VALUATION
MCQS
Q. NO. QUESTIONS
ANS.1 (A) Rs.1,25,000
Explanation- Normal Profit = Capital Employed x Normal Rate/100
Capital Employed = A’s Capital + B’s Capital = 3,00,000 + 2,00,000 = Rs. 5,00,000.
Normal Profit = 5,00,000 x 15/100 = Rs.75,000
Goodwill = Super Profit x No of Purchase Years
1,00,000 = Super Profit x 2
1,00,000/2 = Super Profit
Super Profit = Rs. 50,000
Super Profit = Average Profit – Normal Profit
50,000 = Average Profit – 75,000
50,000 + 75,000 = Average profit
Average Profit = Rs. 1.25,000
ANS.2 (A)Premium for Goodwill
ANS.3 (a).Rs.10,00,000
Explanation- Valuation of Goodwill by Capitalisation of Super profit Method
Goodwill= Super Profit x 100/Normal Rate
Normal Profit = Capital Employed x Normal Rate /100
Capital Employed = Assets – Outside Liabilities
Capital Employed = 28,00,000 – 8,00,000
Capital Employed = 20,00,000
Normal Profit = 20,00,000 x 20/100 = 4,00,000
Super Profit = Average Profit – Normal Profit
Super Profit = 6,00,000 – 4,00,000 = 2,00,000
Goodwill = 2,00,000 x 100 /20 = Rs.10,00,000.
ANS.4 (a)Goodwill Rs.3,40,000.
ANS.5 (a)Rs.10,00,000
Explanation:- Capital Employed = Total Assets – outside Liabilities
Capital Employed = 14,00,000 – 4,00,000 = Rs.10,00,000
ANS.6 (b) Goodwill Rs.1,02,000.
ANS.7 b) Rs.1,80,000
ANS.8 (d) Rs.1,18,000
ANS.9 (a) Rs.10,00,000
ANS.10 (d) Rs.1 5,000
11 Goodwill of the firm on the basis of 2 years' purchase of average profit of the last 3 years is
Rs.25,000. Find average profit.
(a) Rs.50,000 (b) Rs.25,000
(c) Rs.10,000 (d) Rs.37,500
ANS.11 (d) Rs.37,500
ANS.12 (c) Partially true

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Ans.13 a) 1, 00,000
ANSWERS OF ASSERTION & REASONING
ANS.14 (a)Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
Assertion(A)
ANS.15 b). Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct
Explanation of Assertion (A).Explanation- Goodwill is an intangible asset and is recognised as
an asset only when consideration is to be paid for it, According to AS-26 Intangible Assets
prescribes to recognise goodwill as an asset only when consideration has been paid for it.
ANS.16 (a) Rs.6,00,000
ANS.17 (a) Rs.10,00,000
ANS.18 ( a) Rs.60,000
ANS.19 (a) Loss on sale of fixed assets
ANS.20s d) Rs.1,18,000
ANSWERS OF THREE MARKS QUESTIONS (03 MARKS)
ANS.1 Calculation of Actual profit
Particulars 2015-16 2016 – 17 2017 – 18
Profit 4,00,000 5,00,000 2,50,000
(-) Abnormal Gain (50,000)
(+) Abnormal Loss 1,00,000
Actual Profit 3,50,000 6,00,000 2,50,000
Average Profit = 3,50,000 + 6,00,000 + 2,50,000/3
Average profit = 12,00,000/3 = 4,00,000
Goodwill = Average Profit x No of Purchase Years
Goodwill = 4,00,000 x 3 = Rs.12,00,000
ANS.2 Valuation of Goodwill:-
Particulars 2013 – 14 2014 – 15 2015 – 16 2016 – 17 (Rs.)
(Rs.) (Rs.) (Rs.)
Profit/Loss 3,50,000 4,75,000 6,70,000 7,45,000
(Less) Management cost (56,250) (56,250) (56,250) (56,250)
(Less) Closing Stock (15,000)
Overvalued
Actual Profit 2,93,750 4,18,750 6,13,750 6,73,750
Actual average Profit = 2,93750 +418750+613750+673750/4
Actual average Profit =2000000/4=5,00,000 Goodwill = Average Profit x No of Purchase
Year’s
Goodwill = 5,00,000 x 2 = 10,00,000
Raghav’s Share of Goodwill = 10,00,000 x ¼ = 2,50,000
Sacrificing Ratio of Asha & Aditi = 3:2 (Old Ratio)
ANS.3 Goodwill Rs.90,000 of the firm.
Calculation of Actual Profit
Particulars 2022 (Rs.) 2023 (Rs.) 2024 (Rs.)
Profit/Loss 40,000 50,000 45,000
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 (-) Profit on Sale of Land (5,000)
(+) Loss on Sale of Machinery 10,000
(-) Insurance Premium (5,000)
Actual Profit 35,000 60,000 40,000

Average Profit = Total Actual Profits / No of Years = 35,000 (+) 60,000 (+) 40,000 / 3
Average Profit = 1,35,000/3 = 45,000 Goodwill = Average Profit x No of Purchase Years
Goodwill = 45,000 x 2 = Rs. 90,000
ANS.4 Calculation of Weighted Profit
Years Profit Weights Weighted Profits (Column-4)
(Column-1) (Column-2) (Column -3) Column 2 X Column 3)
I 19,000 1 19,000 X 1 = 19,000
II 25,000 2 25,000 X 2 = 50,000
III 27,000 3 27,000 X 3 = 81,000
IV 30,000 4 30,000 X 4 = 1,20,000
V 33,000 5 33,000 X 5 = 1,65,00
15 4,35,000

Weighted Average Profit = Total Weighted Profit / Total Weights

Weighted Average Profit = 4,35,000 / 15 = Rs.29,000
Goodwill = Weighted Average Profit x No of Purchase Years.
Goodwill = 29,000 x 2 = Rs.58,000
Goodwill Rs.58,000 of the firm.
ANS.5 Capital employed = Total assets (-) Outside Liabilities
Capital Employed (Net Assets) = 10,00,000 (-) 1,80,000 = 8,20,000
capitalised value of Average Profits = Average Profits x 100/Normal Rate of Return
Capitalised Value of Average Profit = 1,00,000 x 100 /10 = 10,00,000
Goodwill = Capitalised Value of Average Profit – Capital Employed
Goodwill = 10,00,000 (-) 8,20,000 = Rs.1,80,000
Godwill of the Firm = Rs,1,80,000
ANSWERS OF FOUR MARKS QUESTIONS (04 MARKS)
ANS.1 Calculation of actual profit
Particulars 2013 2014 2015
Profit 40,000 50,000 60,000
(-) Nonrecurring Income (4,000)
(+) Goods destroyed by Fire 6,000
(-) Insurance premium (400) (400) (400)
(-) Proprietor’s Remuneration (6,000) (6,000) (6,000)
(-) interest on investment (5,000)
(+)Loss on sale of furniture 4,000
Actual Profit 39,600 43,600 48,600
Calculation of Weighted Average profit

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 Year Profit Weight Weighted Profits
2013 39,600 1 39,600
2014 43,600 2 87,200
2015 48,600 3 1,45,800
6 2,72,600
Weighted average Profit = Weighted Profits/Total weights
Weighted average Profit =2,72,600/6 = 45,433.33
Goodwill = weighted Average profit x No of Purchase years
Goodwill = 45,433.33 x 3 = Rs.1,36,300
ANS.2 Calculation of Capital employed (liabilities Approach)
Particulars Rs.
Partner’s Capital
Aman-1,00,000
Bhaskar-1,00,000 2,00,000
(+) General Reserve 90,000
2,90,000
(Less) Fictitious Assets -
Goodwill -30,000
Advertisement suspense -10,000 (40,000)
Capital Employed 2,50,000
Normal Profit = Capital Employed x Normal rate/100 = 2,50,000 x 10/100
Normal profit = 25,000
Super profit = Average profit – Normal profit
Super Profit = 50,000 – 25,000
Super Profit = Rs.25,000
Goodwill = Super profit x No of Purchase Years
Goodwill = 25,000 x 2 = Rs.50,000
ANS.3 Calculation of Actual Profit
Particulars 2011 2012 2013 2014
Profits 20,000 30,000 25,000 38,000
(+) Heavy Repairs of Machinery 8,000
(-) Depreciation (800) (800)
(-) Closing Stock Over valued (1,000) (2,000)
(+) Opening Stock Over valued 1,000
(-) management cost (3,000) (3,000) (3,000) (3,000)
Actual profit 17,000 26,000 30,200 32,200
Calculation of Weighted Average Profit
Year Profits Weight Weighted Profit
2011 17,000 1 17,000
2012 26,000 2 52,000
2013 30,200 3 90,600
2014 32,200 4 1,28,800

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 10 2,88,400
Weighted average Profit = Total Weighted Profit / Total Weights
Weighted Average Profit = 2,88,400/10
Weighted Average Profit = 28,840
Goodwill = Weighted Average profit x No of Purchase years
Goodwill = 28,840 x2 = Rs.57,680
ANS.4 Calculation of Actual Profit
Particulars 2011 2012 2013 2014
Profits 25,000 30,000 24,000 38,000
(+) Heavy Repairs of Machinery 10,000
(-) Depreciation (500) (950)
(-) Closing Stock Over valued (3,000)
(+) Opening Stock Over valued 3,000
(-) management cost (3,000) (3,000) (3,000) (3,000)
Actual profit 22,000 24,000 33,500 34,050
Calculation of Weighted Average Profit
Year Profits Weight Weighted Profit
2011 22,000 1 22,000
2012 24,000 2 48,000
2013 33,500 3 1,00,500
2014 34,050 4 1,36,200
10 3,06,700
Weighted average Profit = Total Weighted Profit / Total Weights
Weighted Average Profit = 3,06,700/10
Weighted Average Profit = 30,670
Goodwill = Weighted Average profit x No of Purchase years
Goodwill = 30,670 x 3 = Rs.92,010
ANS.5 Super Profit= Average Profit (-) Normal Profit
Normal Profit = Capital Employed x Normal Rate of Return /100
Capital employed = Total assets (-) Outside Liabilities
Capital Employed (Net Assets) = 10,00,000 (-) 1,80,000 = 8,20,000
Normal Profit = 8,20,000 x 10/100 = 82,000
Super Profit = 1,00,000 (-) 82,000
Super Profit = 18,000
Goodwill = Super Profit x 100 /Normal rate
Goodwill = 18,000 x 100 / 10 = Rs.1,80,000
ANS.6 Calculation of Actual Profit
Particulars 2021 2022 (Rs.) 2023 (Rs.) 2024 (Rs.)
(Rs.)
Profit/Loss 20,000 30,000 25,000 38,000
(+) Major Repairs of Machinery 8,000
(Capital Expenditure)
(-) Depreciation on Machinery (800) (800)
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 (-) Overvaluation of Closing Stock (1,000) (2,000)
(+) Over Valuation of Opening Stock 1,000
(-) Management Cost (3,000) (3,000) (3,000) (3,000)
Actual Profit 17,000 26,000 30,200 32,200
Working Note-
(1) Calculation of Depreciation on Machinery From 1st January 2023 to 31st December 2023 =
8,000 x 10/100 =Rs.800
In the year 2024 –Rs. 800 due to Straight line Method
(2) Overvaluation of Closing Stock in the 2022 is treated Opening Stock in the year 2023.
Calculation of Weighted Profit
Years Profit Weights Weighted Profits (Column-4)
(Column-1) (Column-2) (Column -3) Column 2 X Column 3)
2021 17,000 1 17,000 X 1 = 17,000
2022 26,000 2 26,000 X 2 = 52,000
2023 30,200 3 30,200 X 3 = 90,600
2024 32,200 4 32,200 X 4 = 1,28,800
10 2,88,400
Weighted Average Profit = Total Weighted Profit / Total Weights
Weighted Average Profit = 2,88,400 / 10 = Rs.28840
Goodwill = Weighted Average Profit x No of Purchase Years.
Goodwill = 28840 x 2= Rs.57,680

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