Question

calculate the amount of goodwill on the basis of two years purchase of the last four years average profits. the profits for the last four years are 1 year loss Rs.10,000 IIyear profitRs.26,000 III year profit Rs.34,000 IV year profit Rs. 5000​

Answer 1

Calculate the amount of goodwill on the basis of two years purchase of the last four years average profits. The profits for the last four years are: 1st year loss: Rs. 10,000, 2nd year profit: Rs. 26,000, 3rd year profit: Rs. 34,000 & 4th year profit: Rs. 5000.

Answer: The amount of goodwill is Rs. 27,500

Step by step Explanation:

Finding the Average Profit first,

$\tt{Average \: \: Profit = \frac{ Total \: \: Profit}{ Number \: \: of \: \: years}}$

$\tt= \frac{26000 \: + \: 34000 \: + \: 5000 \: - \: 10000}{4}$

[Subtracting the loss from profits.]

$\tt = \frac{55000}{4} \: \\ \\ = \: \tt13750$

Thus, Average profit is Rs. 13,750.

Calculation of Goodwill:

We know that,

Goodwill is valued at certain number of year's purchase of average profit.

As given, Goodwill is to be calculated as on the basis of 2 year's purchase of Average profit.

Goodwill = 13,750 × 2

= 27,500

Thus, The amount of Goodwill is Rs. 27,500

Answer 2

Answer:

Given :-

last four years average profits. the profits for the last four years are 1 year loss Rs.10,000 IIyear profit Rs.26,000 III year profit Rs.34,000 IV year profit Rs. 5000

To Find :-

Amount

Solution :-

First we need to find average profit

Average profit = 26000 + 34000 + 5000 - 10000/4

Average profit = 60000 + 5000 - 10000/4

Average profit = 65000 - 10000/4

Average profit = 55000/4

Average profit = 13750

Now

The Amount of goodwill = 13750 × 2 = 27500