The profits of firm for the five years are as follows:
|
Year |
Profit (Rs.) |
|
2012-13 |
20,000 |
|
2013-14 |
24,000 |
|
2014-15 |
20,000 |
|
2015-16 |
20,000 |
|
2016-17 |
16,000 |
Calculate the value of goodwill on the basis of three years' purchase of average profits.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 60,000
Total Profit = 20,000+24,000+20,000+20,000+16,000 = Rs 1,00,000
Average Profit= = 1,00,000/5 = 20,000
Goodwill=Average Profit×Number of years’ purchase = 20,000×3=60,000