The profit for the last 5 years of the firm are:

The goodwill of the firm on the basis of 4 years purchase of average profits of 5 years will be:

₹16,00,000

The correct answer is Option (3) - ₹16,00,000.

Total profits = 400000 + 300000 + 350000 + 450000 + 500000
                  = ₹2000000

No of years = 5

Average profit = Total profits / No of years
                     = 2000000/5
                     = ₹400000

Goodwill = Average profits x No of years purchase
             = 400000 x 4
             = ₹1600000