High School

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14.a) The following were the profits earned by Bala and Mala for the past four years:

| Years | Amount (Rs) |
|---|---|
| 2007 | 60000 |
| 2008 | 80000 |
| 2009 | 100000 |
| 2010 | 140000 |

You are required to value the goodwill on the basis of 3 years purchase of weighted average profit, assigning weights of 1, 2, 3, and 4 respectively for the four years.

Answer :

To determine the value of goodwill based on the 3 years purchase of weighted average profit using the provided data, we'll follow these steps.

Step 1: Identify Profits and Weights

  • Years and Profits:

    • 2007: Rs 60,000
    • 2008: Rs 80,000
    • 2009: Rs 100,000
    • 2010: Rs 140,000

  • Weights Assigned:

    • 2007: 1
    • 2008: 2
    • 2009: 3
    • 2010: 4

Step 2: Calculate Weighted Profits

Multiply the profit of each year by its corresponding weight:

  • Weighted Profit for 2007 = 60,000 \times 1 = 60,000
  • Weighted Profit for 2008 = 80,000 \times 2 = 160,000
  • Weighted Profit for 2009 = 100,000 \times 3 = 300,000
  • Weighted Profit for 2010 = 140,000 \times 4 = 560,000

Step 3: Calculate Total Weighted Profit and Total Weights

  • Total Weighted Profit:

    • Sum = 60,000 + 160,000 + 300,000 + 560,000 = 1,080,000

  • Total Weights:

    • Sum = 1 + 2 + 3 + 4 = 10

Step 4: Calculate Weighted Average Profit

The weighted average profit is given by:

[tex]\text{Weighted Average Profit} = \frac{\text{Total Weighted Profit}}{\text{Total Weights}}[/tex]

[tex]\text{Weighted Average Profit} = \frac{1,080,000}{10} = 108,000[/tex]

Step 5: Calculate Goodwill

Goodwill is calculated as 3 years purchase of the weighted average profit:

[tex]\text{Goodwill} = \text{Weighted Average Profit} \times 3[/tex]

[tex]\text{Goodwill} = 108,000 \times 3 = 324,000[/tex]

Conclusion:

The value of goodwill, based on the 3 years' purchase of weighted average profit, is Rs 324,000.

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