Question

PRACTICAL PROBLEMS
Average Profit Method
1. Goodwill is to be valued at three years' purchase of four years' average profit. Pronts for last four year
ending on 31st March, of the firm were:
2016- 12,000; 2017- 18,000; 2018– 16,000; 2019_3 14,000.
Calculate the amount of Goodwill.
2. Annu, Baby and Chetan are partners in a firm sharing profits and losses equally. They decide to take Deep
into partnership from 1st April, 2019 for 1/5th share in the future profits. For this purpose, goodwill is to
be valued at 100% of the average annual profits of the previous three or four years, whichever is higher
The annual profits for the purpose of goodwill for the past four years were:
Year ended
Profit )
31st March, 2019
2,88,000;
31st March, 2018
1,81,800;
31st March, 2017
1,87,200
31st March, 2016
2,53,200.
Calculate the value of goodwill.
3 Calculate the value of goodwill on the basis of three years' purchase of average profit of the preceding
five years which were as follows:
Year ended
Profit (3)
31st March, 2019
8,00,000;
15​

Answer 1

Answer:

1)12000+18000+16000+14000/4

15000*3

45000