Question

The profit as discussed by a business for the last three years were as follows:2012 1,40,000₹ ( Including an abnormal gain of 5,000₹). 2013 ₹1,50,000(After charging an abnormal loss of ₹10,000). 2014 ₹1,45,000 (Exculding ₹5,000as insurance premium of firm's property now to be insured)
Calculate the value of firm's goodwill on the basis of 2 year's purchase of the average profit for the last three
years​

Answer 1

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