Question

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. ​

Answer 1

Answer:

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