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A,B and C are partners sharing profits and losses equally. They agree to admit D for equal share .For this purpose ,the value of goodwill is to be calculated on the basis of 4 years' purchase of average profit of last 5 years.The profits were:-
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A,B and C are partners sharing profits and losses equally. They agree ...
Calculation of Goodwill
To calculate the value of goodwill, we need to follow certain steps. Let's break down the process into different headings:
Step 1: Determine the Average Profit
To calculate the average profit, we need the profit figures for the last 5 years. The profits for these years are as follows:
- Year 1: $50,000
- Year 2: $60,000
- Year 3: $70,000
- Year 4: $80,000
- Year 5: $90,000
To find the average profit, we add up the profits and divide them by 5:
Average Profit = ($50,000 + $60,000 + $70,000 + $80,000 + $90,000) / 5 = $350,000 / 5 = $70,000
Step 2: Determine the Number of Years' Purchase
The number of years' purchase is used to determine the value of goodwill. In this case, we are using 4 years' purchase.
Step 3: Calculate the Goodwill
To calculate the goodwill, we multiply the average profit by the number of years' purchase:
Goodwill = Average Profit x Number of Years' Purchase
Goodwill = $70,000 x 4 = $280,000
Step 4: Allocate the Goodwill among Partners
Since the partners are sharing profits and losses equally, the goodwill will also be divided equally among them. As there are three partners (A, B, and C), each partner will receive 1/3 of the goodwill:
Goodwill per partner = $280,000 / 3 = $93,333.33 (rounded to the nearest cent)
Step 5: Admission of Partner D
Partner D will be admitted for an equal share, which means D will also receive 1/3 of the goodwill:
Goodwill for Partner D = $93,333.33
Conclusion
In conclusion, the value of goodwill is calculated based on the average profit of the last 5 years. In this case, the value of goodwill is $280,000, which will be divided equally among the partners (A, B, and C) and the newly admitted partner D. Each partner will receive $93,333.33 as their share of goodwill.
To calculate the value of goodwill, we need to follow certain steps. Let's break down the process into different headings:
Step 1: Determine the Average Profit
To calculate the average profit, we need the profit figures for the last 5 years. The profits for these years are as follows:
- Year 1: $50,000
- Year 2: $60,000
- Year 3: $70,000
- Year 4: $80,000
- Year 5: $90,000
To find the average profit, we add up the profits and divide them by 5:
Average Profit = ($50,000 + $60,000 + $70,000 + $80,000 + $90,000) / 5 = $350,000 / 5 = $70,000
Step 2: Determine the Number of Years' Purchase
The number of years' purchase is used to determine the value of goodwill. In this case, we are using 4 years' purchase.
Step 3: Calculate the Goodwill
To calculate the goodwill, we multiply the average profit by the number of years' purchase:
Goodwill = Average Profit x Number of Years' Purchase
Goodwill = $70,000 x 4 = $280,000
Step 4: Allocate the Goodwill among Partners
Since the partners are sharing profits and losses equally, the goodwill will also be divided equally among them. As there are three partners (A, B, and C), each partner will receive 1/3 of the goodwill:
Goodwill per partner = $280,000 / 3 = $93,333.33 (rounded to the nearest cent)
Step 5: Admission of Partner D
Partner D will be admitted for an equal share, which means D will also receive 1/3 of the goodwill:
Goodwill for Partner D = $93,333.33
Conclusion
In conclusion, the value of goodwill is calculated based on the average profit of the last 5 years. In this case, the value of goodwill is $280,000, which will be divided equally among the partners (A, B, and C) and the newly admitted partner D. Each partner will receive $93,333.33 as their share of goodwill.
Community Answer
A,B and C are partners sharing profits and losses equally. They agree ...
Arey profit kitna hai wo tho de do question aada aada kyu likta hai
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A,B and C are partners sharing profits and losses equally. They agree to admit D for equal share .For this purpose ,the value of goodwill is to be calculated on the basis of 4 years' purchase of average profit of last 5 years.The profits were:- Related: Treatment of Goodwill - Class 12, Accountancy?
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