Vasu who has been carrying on a retail business for the past 20 years, intends selling his
business on 31st December 2019. It is agreed between Vasu and the buyer that the latter pay Rs.
1,50,000 for goodwill. From the following particulars supplied by Vasu. Calculate the value of
goodwill if it were based on four years purchase of the average profits of the last five years
including the profit of 2019.
Profit earned: 2015 – Rs. 30,000; 2016 – Rs. 40,000; 2017 – Rs. 46,000; 2018 – Rs. 55,000;
2019 – Rs. 44,000 At the time of acquiring Vasu’s business, the buyer was employed as the
manager of a similar business on a salary of Rs. 1,000 per month. The profit of 2019 included
income from investment Rs.3,500 and profit of 2016 had been reduced by Rs. 4,000 being loss
on speculation. Similarly, the profits of 2018 had been reduced by Rs. 6,000 owing to loss from
betting.
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Answer:
business, the buyer was employed as the
manager of a similar business on a salary of Rs. 1,000 per month. The profit of 2019 included
income from investment Rs.3,500 and profit of 2016 had been reduced by Rs. 4,000 being loss
Explanation:
Profit earned: 2015 – Rs. 30,000; 2016 – Rs. 40,000; 2017 – Rs. 46,000; 2018 – Rs. 55,000;
2019 – Rs. 44,000 At the time of acquiring Vasu’s business, the buyer was employed as the
manager of a similar business on a salary of Rs. 1,000 per month. The profit of 2019 included
income from investment Rs.3,500 and profit of 2016 had been reduced by Rs. 4,000 being loss
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