Question

The profit for 2008-2009 are 2000, for 2009 -2010 is 26100,and for 2010-2011 is 31200. Closing inventory for 2009-2010 and 2010-2011 include the defective items of 2200 and 6200 respectively which were considered as having market value Nil. Calculate goodwill on simple average profit method.

Answer 1

AVERAGE PROFIT METHOD :

  Good will=future maintainable profit after tax *no.of years purchase

  Good will = 2000+26100+31200+2200+6200/5

   Good will =13540