Bill payable discounted in cash by supplier will not affect us. It will be recorded by supplier not by us.

Under this method we calculate the average profits and then assess the capital needed for earning such average profits on the basis of normal rate of return, such capital is called capitalized value of average profits. After arriving at the capitalized average profit, Capital employed (assets – liabilities) of the firm is then subtracted from the capitalized value of average profits to arrive at the Goodwill,. To calculate goodwill using average profit, the average net profit for a given number of past years are multiplied by an agreed number of years.

Mathematically, Capitalized Value of Average Profits = Average Profits × (100 / Normal Rate of Return)
Goodwill = Capitalized Value of Average Profits – Capital Employed.
Here profit for the year = 72,000
Reasonable rate of return = 10%
Thus capitalized value of profit = 72,000 × 100/10 = 7,20,000
Capital employed = assets – current liabilities = 9,70,000 – 4,00,000 = 5,70,000
Thus Goodwill = 7,20,000 – 5,70,000 = Rs. 1,50,000

Under average profits method goodwill is calculated on the basis of the average of some agreed number of past years. The average is then multiplied by the agreed number of years. This is the simplest and the most commonly used method of the valuation of goodwill.
Goodwill = Average Profits X Number of years of Purchase
Before calculating the average profits the following adjustments should be made in the profits of the firm:
(a) Any abnormal profits should be deducted from the net profits of that year.
(b) Any abnormal loss should be added back to the net profits of that year.
(c) Non operating incomes e.g. Income from investments etc should be deducted from the net profits of
that year.
Profit of the year 1 : 40,000
loss for the year 2 : (20,000)
Profit for year 3 : 10,000
Profit for year 4 : 60,000
Profit for the year 5 : 80,000
Average profit of last 5 years = (40,000 – 20,000 + 10,000 + 60,000 + 80,000)/5 = Rs. 34,000
Goodwill = 34,000 × 3 = Rs. 1,02,000

So the amount to be sacrificed by A and B equally to make C’s profit as 5000Rs. Will be = 5,000 – 4,000 = Rs. 1,000
A’s sacrifice = 500
B’s sacrifice = 500

A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets.
Profit on venture can be ascertained with the help of the joint venture account.

The goods are consigned from one place to another. After receiving the goods by consignee, the goods are stored by the consignee before selling them to customers. It is natural that some loss to the goods may take place within that period. The goods may be lost, destroyed or damaged either in transit or in consignee’s store. The loss which could be avoided by proper planning and care are abnormal loss. They are like theft, riots, accidents, fire, earthquake etc. These losses could occur in transit or in consignee’s store and solely to be borne by consignor.

The abnormal loss should be adjusted before ascertaining the result of the consignment. The valuation of abnormal loss is done on the same basis as the unsold stock is valued.

Here A of Allahabad sent on consignment to B of Bareilly 1,000 transistors costing Rs. 80 each. A paid freight amounting to Rs. 1,000 and cartage Rs. 45. B received only 900 sets as 100 sets were destroyed in transit. So this is abnormal loss.

Valuation of damage
Cost of 1000 transistors sent = 80000
Add:freight and insurance = 1,000
Add:cartage = 45
Total cost of 100 packets sent = 81,045
So the cost of 15 packets destroyed = 81,045 × 100/1,000 = Rs. 8,104.50