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Question

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.


A

Rs. 1,75,100

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B

Rs. 1,57,100

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C

Rs. 1,71,500

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D

Rs. 1,51,700

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Solution

The correct option is D

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


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