Question

Goodwill is to be valued at three years' purchase of four years' average profit. Profits of the firm for last
four years ending 31st March, were:
2017– 12,000; 2018– 18,000; 2019— 16,000; 2020— 14,000.
Calculate amount of Goodwill.​

Answer 1

Answer:

12000+18000+16000+14000=60000

average profits = 60000/4 = 15000

goodwill 3 year purchase =15000×3=45000

Answer 2

Answer:

The amount of Goodwill = 45,000

Explanation:

Given :

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

• 4 years average profit

$\begin{tabular}{|c|c|}\cline{1-2} Year & Profit \\\cline{1-2}\ 2017 & 12,000 \\\cline{1-2}\ 2018 & 18,000 \\\cline{1-2}\ 2019 & 16,000 \\\cline{1-2}\ 2020 & 14,000 \\\cline{1-2}\end{tabular}$

To find :

• Calculate the amount of Goodwill

Solution :

Goodwill = Average Profit × Number of year's Purchases

Average profit =

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

$\sf{\longrightarrow{\dfrac{12,000 \: + \: 18,000\: + \: 16,000 \: + 14,000}{4}}}$

$\sf{\longrightarrow{\dfrac{60,000}{4} = 15,000}}$

Goodwill = Average Profit × Number of year's Purchases

Number of years Purchases = 3 years

Goodwill = 15,000 × 3

$\longrightarrow \: 45,000$

Therefore,

The amount of Goodwill = 45,000