Question

Profits of last three years were Rs 7500, Rs 8000 and Rs 8500. The value of goodwill at 2 years' purchase of average profit will be.

Answer 1

Answer: Value of goodwill is Rs. 16,000.

Step by step explanation:

Given that,

Profit of first year = Rs. 7500

Second year profit is Rs. 8000

Third year profit is Rs. 8500

Now, We know that,

Average Profit = Total Profit / Number of years

= (7500 + 8000 + 8500)/3

= 24000 / 3

= 8000

Average Profit = Rs. 8,000

• Calculation of Goodwill:

Goodwill is valued at 2 years' purchase of average profit.

Thus, calculating it by using the following formula :

Goodwill = Average profit × Number of years' purchase

= 8,000 × 2

= Rs. 16,000

Thus, Value of Goodwill is Rs. 16,000

Answer 2

Given :-

Profits of last three years were Rs 7500, Rs 8000 and Rs 8500

To Find :-

Value of Goodwill

Average profit

Solution :-

We know that

Average profit made = Total profit in specific time/Total time

Total profit = 7500 + 8000 + 8500

Total profit = 24000

Avg. Profit = 24000/3

Avg. Profit = 8000/1

Avg. Profit = 8000

Total goodwill = Time × Avg. Profit

Total goodwill = 2 × 8000

Total goodwill = 16000