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Question
Under ___________ method Goodwill is valued at the agreed number of years purchase of the average profits of the past few years.
Under ___________ method Goodwill is valued at the agreed number of years purchase of the average profits of the past few years.
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Solution
The correct option is A Average Profit Method
In case of purchase of business or reconstitution, the firm may not be able to earn much profit in operations. The Goodwill, therefore, should be calculated by multiplying the past average profits by the number of years during which the anticipated profits are expected to accrue.
In case of purchase of business or reconstitution, the firm may not be able to earn much profit in operations. The Goodwill, therefore, should be calculated by multiplying the past average profits by the number of years during which the anticipated profits are expected to accrue.
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