The value of goodwill of a firm is Rs. 4,48,000. it has been calculated on the basis of 4 years purchase of weighted average profits of last 3 years. The net profit of the firm for the second year was twice of the net profit of the first year and the net profit for the third year was one and a half time of the second year. weights used for three years are 1,2 and 3 respectively.
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Goodwill = weighted average profit * no. of years purchase
448000=. W.A.P. * 4
Weighted average profit= 448000÷4
=. 112000
Weighted average profit=
Total of product/total of weight
total of weight = 1+2+3= 6
112000 =total of product ÷ 6
total of product= 112000*6
= 672000
Assume first year profit be x then second year profit is 2x and third year is 3x
year profit. weight. product
ist x. 1. x
2nd. 2x. 2. 4x
3rd. 3x. 3. 9x
total of product = 9x
= 672000. = 9x
x= 672000÷ 9
x= 48000
so ist year profit is 48000
2nd year profit is 2"48000= 96000
,3rd year profit is 3*48000= 144000
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