Question

P. Ltd. proposed to purchase the business carried on by Mr. A. Goodwill for this purpose is agreed to be valued at three years purchase of the weighted average profits of the past four years.

The appropriate weights to be used are:

2001 - 1

2002 - 2

2003 - 3

2004 -4

The profit for the year as follows:

2001 - Rs 1,01,000

2002 - Rs 1,24,000

2003- Rs 1,00,000

2004- Rs 1,50,000

• A. Rs 1,29,400
• B. Rs 3,74,700
• C. Rs 1,71,500
• D. Rs 1,51,700

Answer 1

The correct option is B

Rs 3,74,700

$\begin{array}{cccc}\text{Year}& \text{Weights}& \text{Profits}& \text{Total}\\ 2001& 1& 1,01,000& 1,01,000\\ 2002& 2& 1,24,000& 2,48,000\\ 2003& 3& 1,00,000& 3,00,000\\ 2004& 4& 1,50,000& 6,00,000\\ \text{Total}& 10& & 1,24,9000\end{array}$

Weighted Average Profits = Rs. 12,49,000/10 = Rs. 1,24,900

Goodwill = Rs. 1,24,900 X 3 = Rs. 3,74,700