A partnership firm earned net profits during the last 3 years as follows:
2007 - Rs. 1,90,000
2008 - Rs. 2,20,000
2009 - Rs. 2,50,000
Calculate the value of goodwill on the basis of 2 years’ purchase of average profits basis during the above mentioned 3 years.
Rs 4,40,000
Average profits = (Rs. 1,90,000 + Rs. 2,20,000 + Rs. 2,50,000) /3
= Rs. 6,60,000/3
= Rs 2,20,000
Goodwill = Rs. 2,20,000 * 2
= Rs 4,40,000