Calculate goodwill on the basis of two years' purchase of average profit of last four years.
Profit/Loss of last four years is given below:
|
Year |
Amount |
|
2020 |
₹1,00,000 |
|
2021 |
₹1,50,000 |
|
2022 |
₹2,20,000 |
|
2023 |
₹(70,000) |
Additional information: Closing Stock of the year 2022 was overvalued by ₹20,000.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → ₹2,00,000.
Profit of 2020 = 1,00,000
Profit of 2021 = 1,50,000
Profit of 2022 = 2,20,000 - Overvalued closing stock
= 2,20,000 - 20,000
= 2,00,000
Profit of 2023 = (70,000) + Undervaluation of opening stock (Last year closing stock becomes opening stock)
= (70,000) + 20,000
= (50,000)
Total of profits = 1,00,000 + 1,50,000 + 2,00,000 - 50,000
= 4,00,000
Total no of years = 4
Average profit = Total profit/ No of year
= 4,00,000/4
- 1,00,000
Goodwill = Average profits x No of purchase
= 1,00,000 x 2
= 2,00,000