Question

6.Calculate the value of goodwill at 3 years purchase of average profit of last 3 years. The profits were as follows ; 1 st Year Rs 20000 2 nd Year. Rs 30000 3 rd Year Rs 5000 (Loss)​

Answer 1

Answer:

Average profit = Total profit/ No. of years

Average profit = Rs. (800000 + 1500000 + 1800000 - 400000 + 1300000) / 5

Average profit = Rs. 5000000/5

Average profit = Rs. 1000000

Goodwill = Average profit * No. of year's purchase

Goodwill = Rs. 1000000 * 3

Goodwill = Rs.3000000