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Question
The profits of a firm for the last two years are Rs. 45,000 and Rs.30,000. What would be the value of goodwill on the basis of 1 years purchase of the weighted average profits ?
The profits of a firm for the last two years are Rs. 45,000 and Rs.30,000. What would be the value of goodwill on the basis of 1 years purchase of the weighted average profits ?
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Solution
The correct option is B Rs 40,000
Weighted Profits = (45,000*2) + (30,000*1)
= Rs. 1,20,000
Weighted Average Profit = Rs. 1,20,000 / 3
= Rs. 40,000
Goodwill = Weighted Average Profit X Number of year’s purchase
= Rs. 40,000 * 1
= Rs. 40,000
Rs 40,000
Weighted Profits = (45,000*2) + (30,000*1)
= Rs. 1,20,000
Weighted Average Profit = Rs. 1,20,000 / 3
= Rs. 40,000
Goodwill = Weighted Average Profit X Number of year’s purchase
= Rs. 40,000 * 1
= Rs. 40,000
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