Question

VALUATION OF GOODWILL
The Profit & Loss Account of Mr. X disclosed the following results :-
2017 Profits 1,00,000; 2018 Profits 2,00,000; and 2019 Profits 1,70,000.
X intends to sell the business to Y. Ascertain the amount of goodwill after taking into
msideration the following factors :-
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LLUSTRATION 7.
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) Profits of 2017 include a speculative profit of 320,000.
(II) Profits of 2018 were reduced by 30,000 due to loss by fire.
III) The properties were not insured and it was thought prudent to insure the business
in future. The premium was estimated 4,000 per annum.
(IV) The existing tenancy contract has expired and Y will have to pay $2,000 per
month in place of 1,200 per month.
(V) Y will not need the services of X's manager who is paid a salary of 3,000 p.m.
He will supervise the business himself. At present he is serving in a private
company at a salary of 4,000 p.m. which post he shall have to resign.
Goodwill is to be valued at two year's purchase of the average profits of past three
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Answer 1

Answer:

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