Calculate goodwill of the firm by weighted average profit method by assigning weights 1,2,3 respectively to the profit's years ended 2017,2018,2019 if goodwill is to be valued at 2 years purchase of last 3 years profits after allowing partners salary.
Net profit before partners salary is-
Profit of 2017- ₹200000
Profit of 2018- ₹230000
Profit of 2019- ₹250000
Salary of partners is ₹90000 p.a.
Answer & explanation
Correct answer: option 2
| profit | weights | weighted profit |
| 200000 -90000= 110000 | 1 | 110000 |
| 230000-90000= 140000 | 2 | 280000 |
| 250000-90000 = 160000 | 3 | 480000 |
| total | 6 | 870000 |
WEIGHTED AVERAGE PROFIT = total weighted profit/ toal weights
= 870000/6 = ₹145000
GOODWILL= 145000*2 = ₹290000