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Question

Calculate the goodwill for 3 years of purchase on the average profit basis.
year
2014
2015
2016
2017
profit
50000
60000
80000
30000


A
Rs.140000
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B
Rs.150000
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C
Rs.165000
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D
Rs.175000
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Solution

The correct option is C $$Rs.165000$$
Goodwill as per average profit method = average profit X No. of years purchases
Average  Profit = sum of profits / no. of years
                        = $$50000$$+$$60000$$+$$80000$$+$$30000$$ /$$4$$
                        = $$RS.55000$$
therefore,
Goodwill = $$Rs.55000$$ x $$3$$ years of purchases = $$Rs.165000$$

Fundamentals of Accounting and Auditing

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