Question

6. G ltd proposed to purchase the business carried on by thirudass. Goodwill for this purpose is
agreed to be valued at three years purchase of the average profit of the past four years. The
appropriate weights to be used are
1994-1, 1995-2, 1996-3, 1997-4
Profits for these years were
1994-Rs 10000, 1995-Rs11000, 1996-Rs12000, 1997-Rs15000
Compute the values of the goodwill of the firm.

Answer 1

Profit. * Weight. = Weighted profit
10000. *1. = 10000
11000. *2. =22000
12000. * 3. = 36000
15000. * 4. = 60000
Total 10. 128000
Average profit = weighted profit/ total weights
= 128000/10
= 12800
GOODWILL = AVERAGE PROFIT * NO. Of YEARS
= 12800 *3
= 38400