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Calculate goodwill… (Class 12 Accountancy SQP 2023-24, Q20)

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AccountancyCBSE Class 12 · Sample paper, session 2023-24 · 3 marks · Short answer

CBSE Class 12 Accountancy sample paper 2023-24: question 20

From the official CBSE sample question paper for 2023-24, section A, question 20, for 3 marks. Try it first; the hints and our step-by-step solution are below.

Q20 · 3 marks · Short answerAccounting for Partnership: Basic Concepts

Calculate goodwill of a firm on the basis of three years purchases of the Weighted Average Profits of the last four years. The profits of the last four years were:

Years (ending 31st march)2020202120222023
Amount28,00027,00046,90053,810

a) On 1st April, 2020 a major plant repair was undertaken for ₹10,000 which was charged to revenue. The said sum is to be capitalized for goodwill calculation subject to adjustment of depreciation of 10% on reducing balance method.
b) For the purpose of calculating Goodwill the company decided that the years ending 31.03.2020 and 31.03.2021 be weighted as 1 each (being COVID affected) and for year ending 31.03.2022 and 31.03.2023 weights be taken as 2 and 3 respectively.

Source: official sample paper from cbseacademic.nic.in (PDF). See it in the full Sample paper 2023-24.

Hints

Open one hint at a time and try again before the next.

Hint 1

A repair on 1st April, 2020 belongs to the year ending 31st March, 2021.

Hint 2

Capitalising it means adding it back, then charging depreciation on the reducing balance.

Hint 3

Weighted average = Σ(profit × weight) / Σ weights.

Step-by-step solution

Each step shows the marks it earns, as an examiner would award them. Checked by an independent re-solve from the question paper.

  1. Adjusted profits. The repair of 1st April, 2020 falls in the year ending 31st March, 2021, so ₹ 10,000 is added back that year and depreciation at 10% on reducing balance is charged: ₹ 1,000 (2021), ₹ 900 (2022), ₹ 810 (2023).

    YearGiven profit (₹)Adjustment (₹)Adjusted profit (₹)
    202028,000Nil28,000
    202127,000+10,000 − 1,00036,000
    202246,900− 90046,000
    202353,810− 81053,000
    1 mark

  2. Weighted average. 28,000 × 1 + 36,000 × 1 + 46,000 × 2 + 53,000 × 3 = ₹ 3,15,000; weights total 7; weighted average profit = ₹ 45,000.

    1 mark

  3. Goodwill = ₹ 45,000 × 3 = ₹ 1,35,000.

    1 mark

Answer: Goodwill = ₹ 1,35,000 (weighted average profit ₹ 45,000 × 3)

Where the marks are

  • Adjusted profits (1 mark)
  • Weighted average profit ₹ 45,000 (1 mark)
  • Goodwill ₹ 1,35,000 (1 mark)

Revise the chapter

Practise this chapterBoard-style questions from Accounting for Partnership: Basic Concepts, one at a time, marked against the answer key and marking points.Back to the full paperSample paper 2023-24: every question, by section.

The question is transcribed from the official paper; figures are described in words. The solution, hints and chapter tag are ours. Spotted an error? Write tosupport@questionbuddy.in.