Goodwill Is to Be Valued at Three Year's Purchase of Four Years' Average Profit :- Accountancy

Goodwill is to be valued at three years' purchase of four years' average profit. Profits for last four years ending on 31st March of the firm were:

2016 − ₹ 12,000;
2017 − ₹ 18,000;
2018 − ₹ 16,000;
2019 − ₹ 14,000.
Calculate amount of Goodwill.

Goodwill = Average Profit ☓ Number's of year Purchase

= Average Profit = `"Total Profit for past given years"/"Number of Years"`

= `\frac{12,000+18,000+16,000+14,000}{4}`

= `\frac{60,000}{4}`

= Rs.15,000

Given, Numbers of year purchase = 3

∴ Goodwill = Average Profit ☓ Numbers of year purchase

= 15,000 ☓ 3

= Rs. 45,000

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

1 2 3 4 5