Question

The profits of a firm for the year ended 31st March for the last 2 years were as under :

2017 - Rs. 12,000

2018 - Rs.14,400

What would be the value of goodwill on the basis of 3 years purchase of the weighted average profits of the last two years, assuming weight of 1 and 2 are assigned to 2017 and 2018 respectively ?

• A. Rs 30,300
• B. Rs 40,400
• C. Rs 40,800
• D. Rs 13,600

Answer 1

The correct option is C

Rs 40,800

$\begin{array}{cccc}\text{Year}& \text{Weights}& \text{Profits}& \text{Total}\\ 2017& 1& 12000& 12000\\ 2018& 2& 14400& 28800\\ \text{Total}& 3& & 40800\end{array}$

Weighted average profits = Rs. 40,800/3 = Rs. 13,600

Goodwill = Rs. 13,600 X 3 = Rs. 40,800