Question

R, J and D are the partners, sharing profits in the ration 7 : 5 : 4. D died on 30th June 2006. It was decided to value the goodwill on the basis of three years purchase of last five years average profits. It the profits are 29,600; 28,700; 28,900; 24,000 and 26,800, what will be D's share of goodwill?

• A. $Rs.20,700$
• B. $Rs.27,600$
• C. $Rs.82,800$
• D. $Rs.27,000$

Answer 1

Answer: (A)

$Rs.20,700$

Calculation of goodwill

1. Average profit = ( 29600 + 28700 + 28900 + 24000 + 26800 ) /5

= 138000 / 5

= 27600

2. Goodwill = Average profit * No. of year's purchase

= 27600 * 3

= 82800

D's share of profit = 4/16 or 1/4

Therefore, D's share of goodwill = (82800 * 1) / 4

= 20700