The Profit for the five years of a firm are as follows ₹4,00,000, ₹3,98,000, ₹4,50,000, ₹4,45,000 and ₹5,00,000. Calculate goodwill of the firm on the basis of 4 years purchase of 5 years average profit.
Answer & explanation
Correct answer: option 3
The correct answer is option 3- ₹17,54,400.
Total profit of 5 year = ₹4,00,000 + ₹3,98,000 + ₹4,50,000 + ₹4,45,000 + ₹5,00,000
= 21,93,000
AVERAGE PROFIT = Total profits/No of years
= 21,93,000/5
= 4,38,600
Goodwill = Average profit x No of years purchase
= 4,38,600 x 4
= ₹17,54,400