The profits of last five years are
80,000; 90,000; 70,000; 90,000 and
1,00,000. Find the value of goodwill, if it
is calculated on average profits of last
five year on the basis of three year's
purchase.
Answers
Answer: Value of goodwill is Rs. 2,58,000.
Step by step explanation:
To find the value of goodwill, these steps are followed:
- Finding the total profit:
Total Profit is calculated by adding the profits of previous years and deducting the losses from the same, if any.
Total profit = 80,000 + 90,000 + 70,000 + 90,000 + 1,00,000
= Rs. 4,30,000
- Calculating the Average Profit:
Average profit = Total profit / Number of years
= 4,30,000 / 5
= Rs. 86,000
- Now Calculating the goodwill,
Goodwill = Average profit × number of year's purchase
In given question, goodwill is to be calculated as on basis of 3 year’s purchase of average profit,
Goodwill = 86,000 × 3
= Rs. 2,58,000
Thus, the value of goodwill, if it is calculated on average profits of last five year on the basis of three year's purchase, is Rs. 2,58,000.
Given :-
The profits of last five years are 80,000; 90,000; 70,000; 90,000 and 1,00,000
To Find :-
Goodwill
average profits
Solution :-
We know that
Avg. profit = Profit made/Time
Avg. profit = 80000 + 90000 + 70000 + 90000 + 100000/5
Avg. Profit = 4,30,000/5
Avg. profit = 86,000
Now
Goodwill = 86,000 × 3
Goodwill = 2,58,000