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The Profits and losses of a firm for the last four years were as follows: 2015 – Rs. 20,000 2016 – Rs. 25,000 2017 – Rs. 3,000 (Loss) 2018 – Rs. 18,000 you are required to calculate goodwill on the basis of 5 years' purchase of the average profit of last 4 years. |
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Answer» Goodwill = Average profit × No. of years of purchase Average profit = (Total profit)/(No. of years) = (20000 + 25000 + 18000 - 3000)/4 = 60000/4 = Rs. 15,000 Goodwill= Average profit × No. of years purchase = Rs. 15,000 × 5 = Rs. 75,000 |
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