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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.

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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.

  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 13 | Page 30
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