Question

Average Profit Method
1. Goodwill is to be valued at three years' purchase of four years' average profit. Profits for last four years
2013-12,000; 2014—* 18,000; 2015—* 16,000; 2016-* 14,000.
on 31st March of the firm
Calculate amount of Goodwill.​

Answer 1

Answer:

45,000

calculation steps:

The sum of all 4 yrs profits are 60,000 and its avg. profit is 15.000. So the goodwill will be 45,000

Hope it helps!

Answer 2

Answer:

The amount of Goodwill = 45,000

Explanation:

Given :

• The Goodwill of firms should be valued on the basis of 3 year purchase

• 4 years average profit

$\begin{tabular}{|c|c|}\cline{1-2} Year & Profit \\\cline{1-2}\ 2013 & 12,000 \\\cline{1-2}\ 2014 & 18,000 \\\cline{1-2}\ 2015 & 16,000 \\\cline{1-2}\ 2016 & 14,000 \\\cline{1-2}\end{tabular}$

To find :

• Calculate the amount of Goodwill

Solution :

Goodwill = Average Profit × Number of year's Purchases

★ Average profit =

$\sf{\longrightarrow{\dfrac{Total \: Profit \: for \: past \: given \: years}{Number \: of \: years}}}$

$\sf{\longrightarrow{\dfrac{12,000 \: + \: 18,000\: + \: 16,000 \: + 14,000}{4}}}$

$\sf{\longrightarrow{\dfrac{60,000}{4} = 15,000}}$

Goodwill = Average Profit × Number of year's Purchases

Number of years Purchases = 3 years

Goodwill = 15,000 × 3

$\longrightarrow \: 45,000$

Therefore,

The amount of Goodwill = 45,000