Question

Goodwill is to be valued at three years purchase of four years average profit. Profits for last four years ending on 31st March of the firm were:
2015 ₹ 12,000; 2016 ₹ 18,000; 2017 ₹ 16,000; 2018 ₹ 14,000.
Calculate amount of Goodwill.

Answer 1

Solution:

Goodwill = Average profit x number of years purchase

Average Profit =  $\frac{Total Profit for past given years}{Number}$

                        = $\frac{12,000 + 18, 000 + 16, 000 + 14 000}{60,000}$ = 15, 000

Number of Years purchase = 3

Goodwill = 15, 000 x 3 =  45, 000