A firm's profits for the last five years were 20,000;30, 000;40, 000;50, 000 and 60,000. Calculate the value of firm's goodwill on the basis of three years purchase of weighted average profits after using weight of 1,2,3,4,and 5 respectiv
ely.
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profits. weights. product
20000. 1. 20000
30000. 2. 60000
40000. 3. 120000
50000. 4. 200000
60000. 5. 300000
weighted average profit =total of product/total of weights
=700000,/5=140000
Goodwill= weighted average profit × number of year purchase
=140000×3=420000
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