The following trading results are available in respect of the business carried on by a firm:
2001 Loss Rs.10,000
2002 Loss Rs.5,000
2003 Profit Rs.80,000
2004 Profit Rs.55,000
The value of goodwill on the basis of 5 years' purchase of average profit of the business will be ___________.

R s .1, 25, 000

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R s .1, 50, 000

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R s .1, 00, 000

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R s .1, 20, 000

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Solution

The correct option is B $R s .1, 50, 000$
Calculation of goodwill :
1. Average profit = Total profit/ No. of years
Average profit = Rs. (-10000 + [-5000] + 80000 + 55000 ) / 4 years
Average profit = Rs. 120000 / 4 years
Average profit = Rs. 30000
2. Goodwill = Average profit * No. of year's purchase
Goodwill = Rs. 30000 * 5 years
Goodwill = Rs. 150000

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