Calculate goodwill of the partnership firm on basis of one and half year purchase of average profit of last 5 years. The firm earned profits during 3 years as ₹20,000, ₹18,000 and ₹9,000 and suffered losses of ₹2,000 and ₹5,000 in last 2 years.
Answer & explanation
Correct answer: option 1
The correct answer is option 1- ₹12,000.
To calculate the average profit, profits of the years are added and losses are deducted. After addition and deduction, total profit is divided by No of years of profits
Average Profit = (20,000+18,000+9,000-2,000-5,000)/5
= (47,000 - 7,000)/5
= 40,000/5
= 8,000
Goodwill = Average profit x No of years purchase
= 8,000 x 1.5
= 12,000