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Standard XII

Accountancy

Weighted Average Profits Method

Under average...

Question

Under average profits method, goodwill is valued at agreed number of ________ purchase of the average profits of the past few years.

months

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years

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days

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both a and c

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Solution

The correct option is D years
Average profits method is based on the assumption that a new business does not earn any profits during the first few years of its operations. Under this method, the goodwill is valued at agreed number of years purchase of the average profits of past few years.

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Similar questions

Q. Under ___________ method Goodwill is valued at the agreed number of years purchase of the average profits of the past few years.

Q. A business has earned average profit of ₹ 4,00,000 during the last few years and the normal rate of return in similar business is 10%. Find value of goodwill by:
(i) Capitalisation of Super Profit Method, and
(ii) Super Profit Method if the goodwill is valued at 3 years' purchase of super profits.
Assets of the business were ₹ 40,00,000 and its external liabilities ₹ 7,20,000.

Q. X & Associates is a partnership firm, it intends to revalue its goodwill, average profit for the past five years is Rs. 11,000 per annum and goodwill is being valued 3 years purchase of average profit. What would be the value of the goodwill of the firm?

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

Q. A business has earned average profit of Rs.

4, 00, 000

during the last few years and the normal rate of return in similar business is

10 %

. Find value of goodwill by:
(i) Capitalisation of Super Profit Method, and
(ii) Super Profit Method if the goodwill is valued at

3

years purchase of super profits.
Assets of the business were Rs.

40, 00, 000

and its external liabilities Rs.

7, 20, 000

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Under average profits method, goodwill is valued at agreed number of ________ purchase of the average profits of the past few years.

The correct option is D yearsAverage profits method is based on the assumption that a new business does not earn any profits during the first few years of its operations. Under this method, the goodwill is valued at agreed number of years purchase of the average profits of past few years.

The correct option is D years
Average profits method is based on the assumption that a new business does not earn any profits during the first few years of its operations. Under this method, the goodwill is valued at agreed number of years purchase of the average profits of past few years.