The profits for the five years of a firm are as follows - year 2013 Rs. 4,00,000; year 2014 Rs. 3,98,000; year 2015 Rs. 4,50,000; year 2016 Rs. 4,45,000 and year 2017 Rs. 5,00,000. Calculate the goodwill of the firm on the basis of a 4-year purchase of 5 years average profits:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 17,54,400
Under the average profits method, goodwill = average profit × number of years’ purchase.
Total profit of 5 years = 4,00,000 + 3,98,000 + 4,50,000 + 4,45,000 + 5,00,000 = Rs. 21,93,000
Average profit = 21,93,000 / 5 = Rs. 4,38,600
Goodwill = 4,38,600 × 4 = Rs. 17,54,400
NCERT (2026-27 edition):
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