Question

- The profit for the five years of a firm are as follows - year 2017 4,00,000; year 2018 ₹ 3,98,000; year 2019 4,50,000; year 2020 4,45,000 and year 2021 * 5,00,000. Calculate goodwill of the firm on the basis of 4 years purchase taking 5 years average profits.

Answer 1

Given: The profits for the last five years are as follows -

• 2017 - Rs 4,00,000
• 2018 - Rs 3,98,000
• 2019 - Rs 4,50,000
• 2020 - Rs 4,45,000
• 2021 - Rs 5,00,000

To find: The goodwill of the firm on the basis of 4 years' purchase of the average profits of the last five years.

Answer:

Average profit = Total profit ÷ Number of years

Total profit = Rs 4,00,000 + Rs 3,98,000 + Rs 4,50,000 + Rs 4,45,000 + Rs 5,00,000

Total profit = Rs 21,93,000

Number of years = 5

Average profit = Rs 21,39,000 ÷ 5 = Rs 4,38,600

Goodwill = Average profit × Number of years' purchase

Average profit = Rs 4,38,600

Number of years' purchase = 4

Goodwill = Rs 4,38,000 × 4 = Rs 17,54,400

Therefore, the goodwill of the firm on the basis of 4 years' purchase of the average profit of the last five years is Rs 17,54,400.

Answer 2

Answer:

17,54,400

Explanation:

Given:-

1. The profit for the five years of a firm are as follows
2. 2017  ⇒ 4,00,000
3. 2018  ⇒ 3,98,000
4. 2019  ⇒ 4,50,000
5. 2020 ⇒ 4,45,000
6. 2021  ⇒ 5,00,000

Required:-

• Calculate goodwill of the firm
• Goodwill is 4 year purchase of Average profit

Solution:-

Good will = Average profit × no: of year purchases

Average profit = (Total profit)/no: of years

Total profit = (4,00,000+3,98,000+4,50,000+4,45,000+5,00,000)

Total profit = 21,93,000

Average profit = 21,93,000 ÷ 5 = 4,38,600

Goodwill = 4,38,600 × 4 = 17,54,400

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Average profit method

Under this method goodwill is calculated by using the formula

Value of Goodwill = Average profit * No. of years purchase

Averge profit =  Total Profits/ Number of years