Compute the value of goodwill on the basis of four year's purchase of the average profits based on the last five years. The profits for the last five years were as follows.
$\begin{matrix} Year & Amt. (Rs.) 2002 & 40, 000 2003 & 50, 000 2004 & 60, 000 2005 & 50, 000 2006 & 60, 000 \end{matrix}$

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Solution

Goodwill = Average profit $\times$ Number of years purchase

Average profit of last 5 years

= $\frac{40, 000 + 50, 000 + 60, 000 + 50, 000 + 60, 000}{5}$

= Rs. 52,000

Goodwill = $52, 000 \times 4$ = Rs 2,08,000

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Compute the value of goodwill on the basis of four years’ purchase of the average profits based on the last five years? The profits for the last five years were as follows:

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Compute the value of goodwill on the basis of four year's purchase of the average profits based on the last five years. The profits for the last five years were as follows. YearAmt. (Rs.)200240,000200350,000200460,000200550,000200660,000

Goodwill = Average profit × Number of years purchase Average profit of last 5 years = 40,000+50,000+60,000+50,000+60,0005 = Rs. 52,000 Goodwill = 52,000×4 = Rs 2,08,000

Compute the value of goodwill on the basis of four year's purchase of the average profits based on the last five years. The profits for the last five years were as follows.
$\begin{matrix} Year & Amt. (Rs.) 2002 & 40, 000 2003 & 50, 000 2004 & 60, 000 2005 & 50, 000 2006 & 60, 000 \end{matrix}$

Goodwill = Average profit $\times$ Number of years purchase

Average profit of last 5 years

= $\frac{40, 000 + 50, 000 + 60, 000 + 50, 000 + 60, 000}{5}$

= Rs. 52,000

Goodwill = $52, 000 \times 4$ = Rs 2,08,000