Question

Goodwill of the firm is valued at Rs. $5,00,000$ at $2$ years purchase of average profit. Determine the missing value.
Total Profits $=Rs.2,50,000+.....+Rs.3,00,000-Rs.1,00,000+Rs.3,50,000=Rs....$
Average Profit $=\frac{TotalProfits}{NumberOfYears}=\frac{Rs.}{5}=$ Rs.
Goodwill $=Rs.....\times 2=Rs.5,00,000$

Answer 1

Step 1: Calculation of Average Profit from goodwill:

Average Profit= Goodwill/ number of years' of purchase

= 500000/2

= 250000

Step 2: Calculation of Total profit from Average Profit:

Total Profit= Average Profit * Number of years

= 250000 * 5

= 1250000

Step 3: Calculation of missing profit from total profit:

Missing profit= 1250000- 250000- 300000+ 100000- 350000

= 450000