Question

Calculate Goodwill at three years purchase of last five years’

average profits. The Profit were.

2015 - Rs. 96,000

2016 - Rs. 14,400

2017 - Rs. 20,000

2018 - Rs. 6,000

2019 - Rs. 10,000​

Answer 1

Answer is attached here.

Answer 2

Explanation:

Given :

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

• 5 years average profit

• Year ---- Profit
• 2015 ---- Rs. 96,000
• 2016 ----- Rs. 14,400
• 2017 ----- Rs. 20,000
• 2018 ----- Rs. 6,000
• 2019 ----- Rs. 10,000

To find :

• Calculate the Value of Goodwill

Solution :

Goodwill = Average Profit × Number of year's Purchases

★ Average profit =

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

$\sf{\longrightarrow{\dfrac{96,000 \: + \: 14,400\: + \: 20,000 \: + 6,000 \: + \: 10,000}{5}}}$

$\sf{\longrightarrow{\dfrac{1,46,400}{5} = 29,280}}$

$\longrightarrow$ 29,280

Average profit = 29,280

Goodwill = Average Profit × Number of year's Purchases

Number of years Purchases = 3 years

Goodwill = 29,280 × 3

$\longrightarrow$ 87,840

Goodwill = 87,840

Therefore, The Value of Goodwill =  Rs. 87,840