Question

Goodwill of the firm is valued at 3 years purchase of the average profits of last 5 years. The total profits for the last 5 years are rupees 50000 calculate goodwill of the firm

Answer 1

ANSWER

Calculation of goodwill :

(1) Average profit = Total profit/ No. of years

Average profit = Rs. (800000 + 1500000 + 1800000 - 400000 + 1300000) / 5

Average profit = Rs. 5000000/5

Average profit = Rs. 1000000

Goodwill = Average profit * No. of year's purchase

Goodwill = Rs. 1000000 * 3

Goodwill = Rs.3000000