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Mahesh and Suresh are partners and they admit Naresh into partnership. They agreed to value goodwill at three years' purchase on Weighted Average Profit Method taking profits for the last five years. They assigned weights from 1 to 5 beginning from the earliest year and onwards. The profits for the last five years were as follows:
Scrutiny of books of account revealed the following:
A second-hand machine was purchased for 5,00,000 on 1st July, 2017 and 1,00,000 were spent to make it operational. 1,00,000 were wrongly debited to Repairs Account. Machinery is depreciated @ 20% p.a. on Written Down Value Method.
Closing Stock as on 31st March, 2018 was undervalued by 50,000.
Remuneration to partners was to be considered as charge against profit and remuneration of 20,000 p.a. for each partner was considered appropriate. Calculate the value of goodwill.
By: NIHARIKA WALIA ProfileResourcesReport error
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