Treatment of Goodwill

This query is : Resolved

Girish S Khanvilkar (Querist)
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30 March 2010 Dear Sir

The profit for 1998-99 are rs.2000; fo 1999-2000 is rs.26100 and for 2001-01 is rs.31200. closing stock for 1999-2000 and 2000-01 inclued the defective items of Rs.2200 and Rs.6200 respectilvely which were considered as having market value NIL. calclulate goodwill on avg. profit method.

Note Ans. given 17700 in course material

please ans how to calculate g/w

Regards

Girish

M Prabhakar Menon

M Prabhakar Menon (Expert)
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30 March 2010 Year Profit
98-99 2000
99-00 26100
00-01 31200
Sub-total 59300
Less adj for Stk 6200
Adj 3 yr profit 53100
Avg Profit or goodwill 17700
Note The Cl Stk of 99-00 is op stk of 00-01
so Rs2200 is off set by default

CA Ashok Kumar Sahu

CA Ashok Kumar Sahu (Expert)
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30 March 2010 agree with menonji

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shakuntala chhangani

shakuntala chhangani (Expert)
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01 April 2010 Dear Girish, it is there in CPT A/c material MCQ. the answer is:
98-99 99-00 00-01
Profit given 2,000 26,100 31,200
Overvaluation
of cl. st (-) - (2,200) (6,200)
Overvaluation
of Op. St. (+) - - 2,200
Revised profit 2,000 23,900 27,200
avg profit 2,000+23,900+27,200/3
= 53100/3
= 17700
Base for answer : stock is to be valued at cost or MV whichever is less AS 2). Since the MV is nil, it should be valued at nil. wrong val. of cl. stock on higher side will increase the profits of current year but will also increase the op. st. of next year and consequently will reduce the profits of next year. Revert back if u need any further clarification.
Regards, CA Shakuntala Chhangani