Question

The profit for the five years ending on 31st March, are as follows:
Year 2014 ₹ 4,00,000; Year 2015 ₹ 3,98,000; Year 2016 ₹ 4,50,000; Year 2017 ₹ 4,45,000; Year 2018 ₹ 5,00,000.
Calculate goodwill of the firm on the basis of 4 years purchase of 5 years average profit.

Answer 1

Explanation:

Working Notes:

Goodwill = $Average Profits x Number of Years' Pur chase$

Average profit = $\frac{\text { Total Profits }}{\text { Number of Years }}$

$=\frac{4,00,000+3,98,000+4,50,000+4,45,000+5,00,000}{5}$

$=\frac{21,93,000}{5}= 4,38,600$

$Goodwill =4,38,600 \times 4=\mathbf{} 17,54,400$