Question

The Profit earned by business over the last 5 years are as follows : ₹ 12,000 ; ₹13,000 ; ₹ 14,000; ₹18,000 and ₹2000 (loss). Based on two years purchases of the last 5 years profits , Value of goodwill will be :​

Answer 1

Question:-

The profit earned by business over the last 5 years are as follows: 12000,13000,14000,18000 and 2000(loss).Based on 2 years purchases of the last 5 years profits. Calculate valuation of goodwill.

Solution:-

by average profit method.

• To calculate average profit:-

$\rm\purple { \: average \:profit \: = \frac{total \:profit }{no.of \:years }}$

so, here we compute valuation of goodwill by average profit method.

No.of years purchased=2

Total profit=12000+13000+14000+18000-2000(loss)=55000

$\sf \: average \:profit = \frac{55000}{5} = 11000$

$\rm\red{ \: valuation \:of \: goodwill = no.of \: years \: purchased \: \times average \: profit}$

$\sf \: valuation \:of \: goodwill = 11000 \times 2 = 22000$

$\tt\implies\blue{ans)22000}$