The past average profits of a business works out at ₹20,000 and it is expected that such profits are likely to continue for another three years, the value of goodwill based on average profit method will be........
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs. 60,000
Under the average profit method, goodwill is the average profit multiplied by the number of years for which such profits are expected to continue (the years’ purchase).
Goodwill = Average profit × Number of years’ purchase
= Rs. 20,000 × 3
= Rs. 60,000
NCERT (2026-27 edition):
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