Q.13. Compute the value of goodwill on the basis of four years’ purchase of the average profits based on the last five years?

Q.13. Compute the value of goodwill on the basis of four years’ purchase of the average profits based on the last five years? The profits for the last five years were as follows:

Rs
201340,000
201450,000
201560,000
201650,000
201760,000

SOLUTION

Average profit= sum of given year’s profit

Number of given years

Rs
201340,000
201450,000
201560,000
201650,000
201760,000

Sum of 5 year’s profit = 2,60,000

Avearage profit = 2,60,000

                                  5 

                          =52,000

         Goodwill = Avearage profit X number of year’s purchase

                        = 52,000 X 4

                       = Rs 2,08,000

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