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Calculate the Value of Firm'S Goodwill on the Basis of One and Half Years' Purchase of the Average Profit of the Last Three Years. - Accountancy

Sum

Calculate the value of firm's goodwill on the basis of one and half years' purchase of the average profit of the last three years. The profit for first year was ₹ 1,00,000, profit for the second year was twice the profit of the first year and for the third year profit was one and half times of the profit of the second year.

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Solution

Goodwill = Average Profit x Number's of year's purchase
                = 2,00,000 x 1.5 = Rs. 3,00,000

Working Notes:
WN: Calculation of Profits of last three years

Year

Profit

1st Year

1,00,000

2nd Year

2,00,000 (1,00,000 2)

3rd Year

3,00,000 (2,00,000 ×1.5)

Total Profit

6,00,000

WN: Calculation of Average Profit

Average Profit = `"Total Profits for past given years"/"Number of Years"`

= `[ 6,00,000 ]/3`

= Rs. 2,00,000.

  Is there an error in this question or solution?
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APPEARS IN

TS Grewal Class 12 Accountancy - Double Entry Book Keeping Volume 1
Chapter 3 Goodwill: Nature and Valuation
Exercise | Q 4 | Page 28
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