The profits of the firm for the five years are as follows:
| Year | Profit (Rs.) |
| 2012-13 | 20,000 |
| 2013-14 | 24,000 |
| 2014-15 | 30,000 |
| 2015-16 | 25,000 |
| 2016-17 | 18,000 |
Calculate the value of goodwill on the basis of three years' purchase of weighted average profits based on weights of the last five years as 1,2,3,4 and 5 respectively.
Answer & explanation
Correct answer: option 4
The correct answer is option 4- ₹69,600.
| YEAR | PROFITS | WEIGHT | WEIGHTED PROFIT |
| 2012-13 | 20,000 | 1 | 20,000 |
| 2013-14 | 24,000 | 2 | 48,000 |
| 2014-15 | 30,000 | 3 | 90,000 |
| 2015-16 | 25,000 | 4 | 1,00,000 |
| 2016-17 | 18,000 | 5 | 90,000 |
| TOTAL | 15 | 3,48,000 |
Weighted average profit = Total of weighted profits/Total of weights
= 3,48,000/15
= 23,200
Goodwill = Weighted average profit x no of years purchase
= 23,200 x 3
= 69,600