Accountancy Part AAdmission of a Partner

A firm's profit for the last three years are ₹1,00,000, ₹2,00,000 and…

A firm's profit for the last three years are ₹1,00,000, ₹2,00,000 and ₹3,00,000. What is the value of Goodwill, if it is calculated on the basis of four years' 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

Average profit = (₹1,00,000 + ₹2,00,000 + ₹3,00,000) / 3 = ₹2,00,000

Goodwill = average profit × number of years’ purchase

= ₹2,00,000 × 4 = ₹8,00,000

NCERT (2026-27 edition):
Do It Yourself – “… 1. A firm’s profits for the last three years are Rs. 5,00,000; Rs. 4,00,000 and Rs. 6,00,000. Calculate value of firm’s goodwill on the basis of four years’ purchase of the average profits for the last three years.”