Question

Q. 3. The goodwill of a firm is valued at 4 years' purchase of average profits of
last five years. The profits of the last five years were :
Year. profit

2013-14. 200000
2014-15. (300000)
2015-16. 450000(including
an abnormal gain of
₹50000)
2016-17. 350000(after
charging an
abnormal loss of
₹90000)
2017-18 260000
calculate the amount of goodwill
Ans - 800000​

Answer 1

Explanation:

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Answer 2

GIVEN:  Profit of the firm for 2013-14 is 2,00,000; 2014- 15 is (3,00,000 ) 2015-16 is 4,50,000; 2017-18 2,60,000

TO FIND: Amount of goodwill

SOLUTION:

Goodwill is an intangible asset which means that it cannot be touched.

Goodwill of the firm is to be calculated on average profit.

When we calculate the profit we only take a normal gain as a well normal loss.

In the year  2015-2016, there is an abnormal gain of 50,000 which is included in the profit of this year so now the normal profit will be 4,00,000.

In the year  2016-2017, there is an abnormal loss is included of 90,000 so we will add that, so the profit will be 4,40,000.

Average Profit = $\frac{Profit of last five year }{Number of years}$

                     = $\frac{2,00,000 + (3,00,000) + 4,00,000 + 4,40,000 + 2,60,000 }{5}$

                     = 2,00,000

Goodwill =Average Profit × Number of year purchased

          =  2,00,000 × 4

            = 8,00,000

Amount of gooswill is 8,00,000.