Question

A and B were partners in a firm sharing profits and losses into 2 :1 ratio on 1st April 2017 they decided to admit C into partnership for 1/5th share in profit for this purpose Goodwill was valued at 80% of average annual profit of previous 4 years.calculate the amount of goodwill premium brought by c on his admission if profits for previous years were 167000,156000,192000,(10000)​

Answer 1

Explanation:

Step 1: Calculation of Average Profit

(a) Average profit for five years= [14000+15500+10000+16000+15000]/ 5

= 14100

(b) Average profit for four years= [15000+16000+10000+15500]/ 4

= 14125

(b) > (a). Hence, average profit= 14125

Step 2: Calculation of Goodwill

Goodwill= 14125 * 4

= 56500