Question

Goodwill of the firm of A and B is valued at Rs.2,00,000. It is appearing in the books at

Rs.1,20,000. C is admitted for 1/5 share. What amount he is supposed to bring for goodwill?​

Answer 1

Answer:

Calculation of goodwill :

Profit of the first year = Rs. 100000

Profit of the second year = Rs. 20000 (twice of first year's profit)

Profit of the third year = Rs. 300000

(One and half times of profit of second year)

Average profit = Total profit/ no. of years

Average profit = Rs. (100000 + 200000 + 300000) / 3

Average profit = Rs. 600000 / 3

Average profit = Rs. 200000

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

Goodwill = Rs. 200000 * 1.5 years

Goodwill = Rs. 300000