Question

The profits earned by a business over the last 5 years are as follows:

₹ 20,000; ₹ 30,000; ₹ 10,000; ₹ 50,000 and ₹ 2,000 (loss). Based on 2 years of purchases of the last 4 years’ average profits, the value of goodwill will be:

Options

• ₹ 43,200

• ₹ 44,000

• ₹ 46,000

• ₹ 44,800

Answer 1

₹ 44,000

Explanation:

Average Profit = `(30,000 + 10,000 + 50,000 - 2,000)/4`

= `(88,000)/4`

= ₹ 22,000

Goodwill = 2 years’ purchase of average profits

= 22,000 × 2

= ₹ 44,000