Question

(Avg. Profit Method) Goodwill is to be valued at two years purchase of 3 years normal
average profit of the firm. The profit for 2014-15, 20,000 (including insurance claim
received of * 40,000). The loss for 2015-16 8,000 (including voluntary retirement
compensation paid * 1,10,000). The profit for 2016-17 > 1,05,000 (including a profit of
25,000 on the sale of a fixed asset. Calculate the value of goodwill.
arn​

Answer 1

Answer:

1,08,000

Explanation:

Average profit of last three years=profit of last three years/ no. of years

=-(20,000)+1,02000+80,000/3

=1,62,000/3

=₹ 54,000

FY 14-15

20,000-40,000

=₹-20,000

FY 15-16

=-8000+1,10000

=₹1,02,000

FY 16-17

=1,05,000-25,000

=₹80,000

Goodwill=Avg profit*no.of years purchased

54,000*2

=₹1,08,000