Profits earned by the business during the last 5 years were:

2018- ₹12,000
2019- ₹13,000
2020- ₹14,000
2021 - ₹18,000
2022- (₹2,000)

Calculate the amount of goodwill to be valued at 2 years purchase of average profits of last 5 years.

₹22,000

The correct answer is option 2- ₹22,000.

2018- ₹12,000
2019- ₹13,000
2020- ₹14,000
2021 - ₹18,000
2022- (₹2,000)

Total profit of 5 year = 12,000 + 13,000 + 14,000 + 18,000 -2,000
                              = 55,000

*2022 Year is a loss so it is deducted from the profits.

AVERAGE PROFIT = Total profits/No of years
                          = 55,000/5
                          = 11,000

Goodwill = Average profit x No of years purchase
             = 11,000 x 2
             = ₹22,000