Model: Weighted average method with adjustments Calculate the goodwill of a company on the basis of…

Model: Weighted average method with adjustments Calculate the goodwill of a company on the basis of 2 years’ purchase of weighted average profits for the last 3 years. Purchase of weighted average profits for the last 3 years. 2007: Rs.1,00,000; 2008: Rs.70,000; 2009: Rs.50,000. The weights assigned to each year are: 2007: 1; 2008: 2; 2009: 3.

Further information: On 1 October 2008, repair in respect of machinery was Rs.5,000, which was charged to revenue. This is to be capitalized for goodwill calculation subject to depreciation of 10% p.a. on reducing balance method. The closing stock for the year 2007 was overvalued by Rs.3,000. To cover the management cost and annual charge, Rs.4,000 should be made for the purpose of goodwill valuation.

 

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