Question

Profits for the five years ending on 31st March, are as follows:

Year 2015 − ₹ 4,00,000; 

Year 2016 − ₹ 3,98,000; 

Year 2017 − ₹ 4,50,000; 

Year 2018 − ₹ 4,45,000 and Year 2019 − ₹ 5,00,000.

Calculate goodwill of the firm on the basis of 4 years' purchase of 5 years' average profit.

Answer 1

Goodwill = Average Profit x Number's of year's purchase

Number of years’ purchase = 4

∴ Goodwill = 4,38,600 x 4 = Rs. 17,54,400.