Question

Goodwill is to be valued at three year's of average profit. Profit for past four years ending on ${31}^{st}$March of the firm were:
$2015-Rs12,000;2016-Rs18,000;2017-Rs16,000;2018-Rs14,000$
Calculate amount of Goodwill.

Answer 1

Step 1:

Calculation of Average Profit:

Average Profit= [12000+18000+16000+14000]/ 4

= 15000

Step 2:

Calculation of Goodwill:

= Average profit * No. of purchase year's

= 15000* 3

= 45000