# Calculate Value of Goodwill on the Basis of Three Years' Purchase of Weighted Average Profit - Accountancy

Sum

Profits of a firm for the year ended 31st March for the last five years were:

 Year Ended 31st March, 2015 31st March, 2016 31st March, 2017 31st March, 2018 31st March, 2019 Profits (₹) 20,000 24,000 30,000 25,000 18,000

Calculate value of goodwill on the basis of three years' purchase of Weighted Average Profit after assigning weights 1, 2, 3, 4 and 5 respectively to the profits for years ended 31st March, 2015, 2016, 2017, 2018 and 2019.

#### Solution

 Year Profit × Weight = Product 2015 20,000 × 1 = 20,000 2016 24,000 × 2 = 48,000 2017 30,000 × 3 = 90,000 2018 25,000 × 4 = 1,00,000 2019 18,000 × 5 = 90,000 Total 15 3,48,000

Weighted Average Profit = "Total Product of Profit"/"Total of weight"
= [3,48,000]/15 = Rs. 23,200

Goodwill = Weighted Average Profit x Number of Year's Purchase
= 23,200 x 3 = Rs. 69,600.

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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 13 | Page 30