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Q16.Calculate goodwill of a firm on the basis of three years' purchase of the Weighted Average Profit of the last four years. The profits of the last four financial years ended 31st March, were: 2016 − 25,000; 2017 − 27,000; 2018 − 46,900 and 2019 − 53,810. The weights assigned to each year are: 2016 − 1; 2017 − 2; 2018 − 3; 2019 − 4. You are supplied the following information:
On 1st April, 2016, a major plant repair was undertaken for 10,000 which was charged to revenue. The said sum is to be capitalised for goodwill calculation subject to adjustment of depreciation of 10% on Reducing Balance Method.
The Closing Stock for the years ended 31st March, 2017 and 2018 were overvalued by 1,000 and 2,000 respectively.
To cover management cost an annual charge of 5,000 should be made for the purpose of goodwill valuation.
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