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Calculate Goodwill of the Firm on the Basis of 4 Years' Purchase of 5 Years' Average Profit :-Accountancy

Profits for the five years ending on 31st March, are as follows: Year 2015 − ₹ 4,00,000; Year 2016 − ₹ 3,98,000; Year 2017 − ₹ 4,50,000; Year


Profits for the five years ending on 31st March, are as follows:

Year 2015 − ₹ 4,00,000;
Year 2016 − ₹ 3,98,000; 
Year 2017 − ₹ 4,50,000;
Year 2018 − ₹ 4,45,000 and
Year 2019 − ₹ 5,00,000.

Calculate goodwill of the firm on the basis of 4 years' purchase of 5 years' average profit.




Goodwill = Average profit ☓ Number's of year purchase

Average profit = `"Total Profits"/"Years"`

= `\frac{4,00,000+3,98,000+4,50,000+4,45,000+5,00,000}{5}`

= `\frac{21,93,000}{5}`

= Rs. 4,38,600

Given, Number of year purchase = 4

∴ Goodwill = Average Profit ☓ Numbers of year purchase
= Goodwill = 4,38,600 ☓ 4

= Rs. 17,54,400.

Chapter-3 Goodwill: Nature and Valuation-TS.Grewal



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