Why
simple average profit method is used for the calculation of goodwill ?

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Solution

Dear student,
There's no specific reason that average profit method will be used in calculation of goodwill.Any method can be used to find value of goodwill.
Reason for using Average profit method- Past profits show the trend of financial performance(sale & profit) which in turn indicated likely future profits.Buyer of the business would like bto estimate future profits for which profits are averaged.
Regards

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Formula for calculation of goodwill according to average profits method is:

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