Compute the value of goodwill on the basis years purchase of the average profits based on the last five years? The profits for the last five years were as follow:
Admission of partner
Year-------rs
2013----40,000
2014----50,000
2015----60,000
2016----50,000
2017----60,000
Answers
Answer:
Average profit = total profit of last five years
no. of years
=
40,000+50,000+60,000+50,000+60,000
= 260,000÷5
Average profit = 52000
Question:-
Compute the value of goodwill on the basis years purchase of the average profits based on the last five years? The profits for the last five years were as follow:
Admission of partner
Year-------rs
2013----40,000
2014----50,000
2015----60,000
2016----50,000
2017----60,000
Answer:-
Profit for the last 5 years is:-
2017 – Rs. 40,000
2018 – Rs. 50,000
2019 – Rs. 60,000
2020 – Rs. 50,000
2021 – Rs. 60,000
To find:-
Goodwill
Calculations:-
Goodwill = Average profit × No: of year purchase
Average profit = Sum of profits ÷ no: of years
Sum of profits = 2,26,000
No: of years = 5
Average profit = 2,26,000 ÷ 5 = 52,000
Goodwill = Average profit × No: of year purchase