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.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → 22,000
Under the average profits method, a loss year is deducted while adding the profits; goodwill = average profit × years’ purchase.
Total = 12,000 + 13,000 + 14,000 + 18,000 − 2,000
= 55,000
Average profit = 55,000 ÷ 5 = 11,000
Goodwill = 11,000 × 2 = 22,000
NCERT (2026-27 edition):
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