The profits of a firm for 5 years are as follow:
|
Year |
Profits (₹) |
|
2012-13 |
20,000 |
|
2013-14 |
24,000 |
|
2014-15 |
30,000 |
|
2015-16 |
25,000 |
|
2016-17 |
18,000 |
Calculate Goodwill on the basis of 3 years purchase of weighted average profits of last five years based on weights 1, 2, 3, 4 and 5 respectively.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → ₹69,600
Weighted average profit = Weighted total profit/ Total of weights
Weighted Average Profit = [(Profit for 2012-13 × 1) + (Profit for 2013-14 × 2) + (Profit for 2014-15 × 3) + (Profit for 2015-16 × 4) + (Profit for 2016-17 × 5)]/(1 + 2 + 3 + 4 + 5)
= [(20,000 × 1) + (24,000 × 2) + (30,000 × 3) + (25,000 × 4) + (18,000 × 5)]/(1 + 2 + 3 + 4 + 5)
= [(20,000) + (48,000) + (90,000) + (100,000) + (90,000)] / (15)
= 3,48,000 / 15
= ₹23,200
Goodwill = Weighted Average Profit × Number of Years' Purchase
= ₹23,200 × 3
= ₹69,600