Question

On $1$st April, $2014$ on the admission of a new partner, it is agreed that goodwill of the firm is valued at $2$ years purchase of weighted average profits for the last three years. The profits for last $3$ years have been as follows:

Year ended	Profits	Weight
31st March 2011	45,000	1
31st March 2012	52,500	2
31st March 2013	72,000	3

Value of goodwill will be ___________.

• A. $Rs.1,22,000$
• B. $Rs.2,22,000$
• C. $Rs.1,22,222$
• D. $Rs.1,20,000$

Answer 1

The correct option is A $Rs.1,22,000$

Calculation of goodwill under weighted average profit basis-

Under this method, average profit my be arrived at by assigning proper weights as below:

Year (1)	Profit (2) (Rs.)	Weight (3)	Weighted profit (4) = (2) * (3) (Rs.)
1	45000	1	45000
2	52500	2	105000
3	72000	3	216000
		6	366000

So, Weighted Average Profit = Rs. 366000/6 =Rs. 61000

Goodwill = Weighted average profit * No. of year's Purchase

Goodwill = Rs. 61000 * 2 years

Goodwill = Rs. 122000