Akanksha, Chetna, and Dipanshu are partners in the firm sharing profits and losses in the ratio of 3:2:1. They decide to take Jatin into the partnership for 1/5 share in the future profits. For this purpose, goodwill is to be valued at 2 times the average annual profits of the previous four years. The average profits for the past four years were:
2008 - Rs. 96,000
2009 - Rs. 60,600
2010 - Rs. 62,400
2011 - Rs. 84,400
Calculate the value of goodwill.
Rs. 1,51,700
Total Profit = Rs. 96,000 + Rs. 60,600 + Rs. 62,400 + Rs. 84,400 = Rs. 3,03,400
Average Profit = Total Profit/No. of Years
Average profit = Rs. 3,03,400/4 = Rs. 75,850
Goodwill = Average Profit x Number of Years of Purchase
Goodwill = Rs. 75,850 * 2 = Rs. 1,51,700