Profits of a Firm for the Year Ended 31st March For the Last Five Years Were :- Accountancy
Profits of a firm for the year ended 31st March for the last five years were
Calculate value of goodwill on the basis of three years’ purchase
Profits of a firm for the year ended 31st March for the last five years were:
Calculate value of goodwill on the basis of three years’ purchase of Weighted Average Profit after assigning weights 1, 2, 3, 4 and 5 respectively to the profits for years ended 31st March, 2015, 2016, 2017, 2018 and 2019.![]()
= Rs. 69,600.
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| Year Ended | 31st March, 2015 | 31st March, 2016 | 31st March, 2017 | 31st March, 2018 | 31st March, 2019 |
| Profits (₹) | 20,000 | 24,000 | 30,000 | 25,000 | 18,000 |
| Year | Profit | × | Weight | Product |
| 2015 | 20,000 | × | 1 | 20,000 |
| 2016 | 24,000 | × | 2 | 48,000 |
| 2017 | 30,000 | × | 3 | 90,000 |
| 2018 | 25,000 | × | 4 | 1,00,000 |
| 2019 | 18,000 | × | 5 | 90,000 |
| Total | 15 | 3,48,000 |
Weighted Average Profit = `"Total Product of Profit"/"Total of weight"`
= `[3,48,000]/15`
= Rs. 23,200
Goodwill = Average Profits of last years `\times` No. of years Purchase
Goodwill = Rs. 23,200 `\times` 3
= `[3,48,000]/15`
= Rs. 23,200
Goodwill = Average Profits of last years `\times` No. of years Purchase
Goodwill = Rs. 23,200 `\times` 3
= Rs. 69,600.
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