Calculate the Value of Firm's Goodwill On the Basis Of One And Half Years' Purchase of the Average Profit :- Accountancy
Calculate the value of firm's goodwill on the basis of one and half years' purchase of the average profit of the last three years. The profit for firs
Calculate the value of firm's goodwill on the basis of one and half years' purchase of the average profit of the last three years. The profit for first year was ₹ 1,00,000, profit for the second year was twice the profit of the first year and for the third year profit was one and half times of the profit of the second year.
Goodwill = Average Profit `\times` number of years purchase
Goodwill= 2,00,000 `\times` 1.5 = Rs. 3,00,000
Working Notes :
1. Calculation of profit (last 3 years)
| year | Profit |
| 1st Year | 1,00,000 |
| 2nd Year | 2,00,000 (1,00,000 x 2) |
| 3rd Year | 3,00,000 (2,00,000 x 1.5) |
| Total | 6,00,000 |
2. Calculation of Average Profit
= `\frac{6,00,000}{3}`
= Rs. 2,00,000
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