Question

A and B are partners in a firm. they admitted C into the firm. The goodwill for the purpose is to be calculated at year's purchase of the average normal profit of the last three years which were Rs.10,000 ,15,000 and 30,000 respectively. Second years profit includrd profit on the sale of Machinery Rs.10,000 find the value of goodwill of the firm on C's admission​

Answer 1

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Answer 2

Goodwill of the firm after the admission of C will be 30,000, 45,000, and Rs. 15,000.

GIVEN: Average profits of three years.

TO FIND: Goodwill of the firm.

SOLUTION:

As we know,

Average profits = 10,000 + ( 15,000-10,000) + 30,000                                                                      

                                                     3

                          = 45,000

                                  3

                          = Rs. 15,000

Since,

Goodwill is the monetary value of the reputation of the firm earned by it over some time.

Goodwill = Average profits multiplied by Number of years of purchase.

Goodwill of the firm if the year of purchase is 2,

Goodwill = 15,000 * 2 = Rs.30,000

Goodwill of the firm if the year of purchase is 3,

Goodwill = 15,000 * 3 = Rs.45,000

Goodwill of the firm if the year of purchase is 1,

Goodwill = 15,000 * 1 = Rs.15,000

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