The profits of firm for the five years are as follows:

Year 2021 – Profit (Rs.) 2,00,000

Year 2022 – Profit (Rs.) 2,40,000

Year 2023 – Profit (Rs.) 3,00,000

Year 2024 – Profit (Rs.) 2,50,000

Year 2025 – Profit (Rs.) 1,80,000

Calculate the value of goodwill on the basis of four years' purchase of average profits.

Rs. 9,36,000

Correct answer: Option (3) → Rs. 9,36,000

Concept: Average Profits Method – Goodwill = Average Profit × Number of years’ purchase, from Reconstitution of a Partnership Firm – Admission of a Partner.

Total profit = 2,00,000 + 2,40,000 + 3,00,000 + 2,50,000 + 1,80,000 = Rs. 11,70,000
Average profit = 11,70,000 ÷ 5 = Rs. 2,34,000
Goodwill = 2,34,000 × 4 = Rs. 9,36,000.