Question

Weighted Average Profit Method
10. Profits of a firm for the year ended 31st March for the last five years were:
Year Ended 31st March, 2017 31st March, 2018 31st March, 2019 31st March, 2020
Profits) 20,000
24,000
30,000
25,000
to
pro
Fo
(
31st March, 2010
18,000
Calculate value of goodwill on the basis of three years' purchase of Weighted Average Profit at
assigning weights 1, 2, 3, 4 and 5 respectively to the profits for years ended 31st March, 2017,20
2019, 2020 and 2021.
(if
C С
16. C​

Answer 1

Answer:

Value of Goodwill = Rs. 69,600

Explanation:

Solution :

Weighted Average Profit Method :

Goodwill = Weighted Average Profit × No. of years Purchases

Weighted Average Profit =

$\sf{\longrightarrow{\dfrac{Total \:Of\: Product \: of \: Profit}{Total \: of \: Weights}}}$

$\sf{\longrightarrow{\dfrac{ 3,48,000}{15}}}$

$\sf{\longrightarrow{23,200}}$

Weighted Average Profit = Rs. 23,200

Goodwill = Weighted Average Profit × No. of years Purchases

No. of years Purchases = 3 years

Goodwill = 23,200 × 3

Goodwill = Rs. 69,600

Therefore, Value of Goodwill = Rs. 69,600

Answer 2

Explanation:

Using :

• Goodwill = Weighted average profit × Number of years of purchases

Also,

Weighted average profit = Total product profit/Total weights

==> Goodwill = (3,48,000/15) × 3

==> Goodwill = 23,200 × 3

==> Goodwill = 69,600

Hence, the goodwill is Rs. 69,600.