[ISC] Q. 14 Solution of Goodwill TS Grewal ISC 2023-24 Edition

Calculate the goodwill of a firm on the basis of three years’ purchase of the weighted average profit of the last four financial years. The appropriate weights to be used and profits are:

1. 2019–20 — Profits ₹ 1,01,000; Weight 1
2. 2020–21 — Profits ₹ 1,24,000; Weight 2
3. 2021–22 — Profits ₹ 1,00,000; Weight 3
4. 2022–23 — Profits ₹ 1,40,000; Weight 4

On a scrutiny of the accounts, the following information was taken:

1. (i) On 1st December, 2021, a major repair was made in respect of the plant incurring ₹ 30,000 which was charged to revenue. The said sum is agreed to be capitalised for goodwill calculation subject to adjustment of depreciation of 10% p.a. on Reducing Balance Method.
2. (ii) The closing stock for the year ended 31st March, 2021 was overvalued by ₹ 12,000.
3. (iii) To cover management cost, an annual charge of ₹ 24,000 should be made for the purpose of goodwill valuation.
4. (iv) On 1st April, 2020, a machine having a book value of ₹ 10,000 was sold for ₹ 11,000 but the proceeds were wrongly credited to Profit & Loss Account. No effect has been given to rectify the same. Depreciation is charged on machine @ 10% p.a. on Reducing Balance Method.