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.