The profits of firm for the five years are as follows:
| Year | Profit (Rs.) |
|---|---|
| 2021 | 2,00,000 |
| 2022 | 2,40,000 |
| 2023 | 3,00,000 |
| 2024 | 2,50,000 |
| 2025 | 1,80,000 |
Calculate the value of goodwill on the basis of four years' purchase of average profits.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 9,36,000
Under the average profits method, goodwill = average profit × number of years’ purchase. The average is taken over all the years given.
Total profit of five years = Rs. 2,00,000 + Rs. 2,40,000 + Rs. 3,00,000 + Rs. 2,50,000 + Rs. 1,80,000 = Rs. 11,70,000
Average profit = Rs. 11,70,000 ÷ 5 = Rs. 2,34,000
Goodwill = Rs. 2,34,000 × 4 = Rs. 9,36,000
Note: NTA picked this question from an NCERT (2026-27) illustration and changed the figures. Do not ignore NCERT while practising numericals.
NCERT (2026-27 edition):
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