Calculate the value of firm's goodwill on the basis of one and half years purchase of the average profit of the last three years. the profit for first year was Rs. $1, 00, 000$ , profit for the second year was twice the profit of the first year and for third year profit was one and half times of the profit of the second year.

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Solution

Calculation of goodwill :
Profit of the first year = Rs. 100000
Profit of the second year = Rs. 20000 (twice of first year's profit)
Profit of the third year = Rs. 300000
(One and half times of profit of second year)
Average profit = Total profit/ no. of years
Average profit = Rs. (100000 + 200000 + 300000) / 3
Average profit = Rs. 600000 / 3
Average profit = Rs. 200000
Goodwill = Average profit * No. of year's purchase
Goodwill = Rs. 200000 * 1.5 years
Goodwill = Rs. 300000

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