Calculate Value of Goodwill On the Basis of Three Years' Purchase of Average Profit of the Preceding Five Years :- Accountancy

Calculate value of goodwill on the basis of three years' purchase of average profit of the preceding five years which were as follows:

Year	2018-19	2017-18	2016-17	2015-16	2014-15
Profits (₹)	8,00,000	15,00,000	18,00,000	4,00,000 (Loss)	13,00,000

Goodwill = Average Profit ☓ Number's of year Purchase
Average Profit = `"Total Profit for past given Years"/"Number of Years"`

= Rs. `frac{8,00,000 + 15,00,000 + 18,00,000 - 4,00,000 + 13,00,000}{5}`

= Rs. `"50,00,000"/5`

= Rs.10,00,000

Given, Numbers of year purchase = 3
∴ Goodwill = Average Profit ☓ Numbers of year purchase
= 10,00,000 ☓ 3
= Rs. 30,00,000

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

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