The profits for the past five years of a firm are as follows: 2021 - Rs. 4,50,000; 2022 - Rs. 3,20,000; 2023 - Rs. 3,50,000; 2024 - Rs. 4,30,000 and 2025 - Rs. 3,00,000. What will be the amount of goodwill of the firm on the basis of three years purchase of five years average profits?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 11,10,000
Under the average profits method, goodwill = average profit × number of years’ purchase.
Total profit of five years = Rs. 4,50,000 + Rs. 3,20,000 + Rs. 3,50,000 + Rs. 4,30,000 + Rs. 3,00,000 = Rs. 18,50,000
Average profit = Rs. 18,50,000 ÷ 5 = Rs. 3,70,000
Goodwill = Rs. 3,70,000 × 3 = Rs. 11,10,000
Note: NTA picked this question from an NCERT (2026-27) illustration and changed the figures. Do not ignore NCERT while practising numericals.
NCERT (2026-27 edition):
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