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Answer 1

Information provided with us:

Profit for the five years ending on 31st March are,

• In 2014 profit is of Rs.4,00,000
• In 2015 profit is of Rs.3,98,000
• In 2016 profit is of Rs.4,50,000
• In 2017 profit is of Rs.4,45,000
• In 2018 profit is of Rs.5,00,000
• Purchase is of 4 years

What we have to calculate:

• Goodwill of that firm on the basis of 4 years purchase and purchase of 5 years average profit.

Required calculations:

First of all we have to calculate the average profit so that we would use it and find out the goodwill. It is calculated by this formula,

• $\underline{ \boxed{ \sf{Average \: profit \: = \: \dfrac{Total \: profit}{No. \: of \: years } }}}$

Here we would add all the profits made in year 2014, 2015, 2016 , 2017 and 2018:

$: \longmapsto \: \sf{Average \: profit \: = \: \dfrac{400000 + 398000 + 450000 + 445000 + 500000}{5} }$

$: \longmapsto \: \sf{Average \: profit \: = \: \dfrac{798000 + 450000 + 445000 + 500000}{5} }$

$: \longmapsto \: \sf{Average \: profit \: = \: \dfrac{798000 + 895000 + 500000}{5} }$

$: \longmapsto \: \sf{Average \: profit \: = \: \dfrac{2193000}{5} }$

$: \longmapsto \: \sf{Average \: profit \: = \: \cancel\dfrac{2193000}{5} }$

$: \longmapsto \: \red{\boxed{ \sf{Average \: profit \: = \: 438600 }}}$

• $\therefore$ Average profit is of Rs.438600

Finding out goodwill:-

We know that goodwill is calculated by,

• $\underline{ \boxed{ \sf{Goodwill \: = \:Average \: profit \: \times \: no. \: of \: purchase \: years}}}$

Substituting the values,

$\longmapsto$ Goodwill = 438600 × 4

$\longmapsto$ Goodwill = 1754400

∴ Goodwill is of Rs.1754400