A firm's profit for the last three years are ₹100,000, ₹2,00,000 and ₹3,00,000. What is the value of Goodwill, if it is calculated on the basis of four year's purchase of the average profits of the last 3 years?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → ₹8,00,000
Total Profit = 1,00,000 + 2,00,000 + 3,00,000
= 6,00,000
Average Profit = Total profit / no of years
= 6,00,000/3
= 2,00,000
Goodwill = Average Profit × No of years purchase
Goodwill = 2,00,000 × 4
= 8,00,000