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:

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

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.

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 

= Rs. 69,600.

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

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