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.
Advertisement Remove all ads
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.
Concept: Methods of Valuation of Goodwill
Is there an error in this question or solution?
Advertisement Remove all ads
APPEARS IN
Advertisement Remove all ads
Advertisement Remove all ads