The profit for the last 5 years of the firm are:
|
Year |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Profits (Rs.) |
4,00,000 |
3,00,000 |
3,50,000 |
4,50,000 |
5,00,000 |
The goodwill of the firm on the basis of 4 years purchase of average profits of 5 years will be:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) - ₹16,00,000.
Total profits = 4,00,000 + 3,00,000 + 3,50,000 + 4,50,000 + 5,00,000
= ₹20,00,000
No of years = 5
Average profit = Total profits / No of years
= 20,00,000/5
= ₹4,00,000
Goodwill = Average profits x No of years purchase
= 4,00,000 x 4
= ₹16,00,000