Advertisements
Advertisements
Question
The following are the profits of a firm in the last five years:
2014: ₹ 10,000; 2015: ₹ 11,000; 2016: ₹ 12,000; 2017: ₹ 13,000 and 2018: ₹ 14,000
Calculate the value of goodwill at 2 years purchase of average profit of five years.
Sum
Advertisements
Solution
| Years | Profit |
| 2014 | ₹ 10,000 |
| 2015 | ₹ 11,000 |
| 2016 | ₹ 12,000 |
| 2017 | ₹ 13,000 |
| 2018 | ₹ 14,000 |
| Total profit | ₹ 60,000 |
Average profit = `"Total profit"/"Number of years"`
= `(60,000)/5`
= ₹ 12,000
Valuation of goodwill = Average profit × No. of years purchase
= ₹ 12,000 × 2 years
= ₹ 24,000
shaalaa.com
Is there an error in this question or solution?
