Question

Calculate the amount of goodwill in the following case:
Three years purchase of last four years average profit is agreed as the goodwill value. The profits and losses for the last four years are: I - Rs. 5,000, II - Rs. 8,000, III - Rs. 3,000 (loss) and IV - Rs. 6,000,"​

Answer 1

Answer:

Average profit = 5000+8000-3000+6000/4

= 16000/4=4000

Goodwill = avrage profit * number of year purchase

= 4000*3=12000

Answer 2

Answer:

The Amount of Goodwill =  Rs. 12,000

Explanation:

Given :

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

• The profits and losses for the last four years are:

$\begin{tabular}{|c|c|}\cline{1-2} Year & Profit/Loss(Rs.) \\\cline{1-2}\ I & 5,000 \\\cline{1-2}\ II & 8,000 \\\cline{1-2}\ III & 3,000 (Loss)\\\cline{1-2}\ IV & 6,000 \\\cline{1-2}\end{tabular}$

To find :

• Calculate the Value of Goodwill

Solution :

Goodwill = Average Profit × Number of year's Purchases

★ Average profit =

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

$\sf{\longrightarrow{\dfrac{5,000 \: + \: 8,000\: - \: 3,000\:(Loss) \: + \:6,000}{4}}}$

$\sf{\longrightarrow{\dfrac{16,000}{4} = 4,000}}$

Average profit = 4,000

Goodwill = Average Profit × Number of year's Purchases

Number of years Purchases = 3 years

Goodwill = 4,000 × 3

$\longrightarrow \: 12,000$

Goodwill = 12,000

∴ The Amount of Goodwill =  Rs. 12,000