A firm's profit for the last three years are 100,000, 2,00,000 and 3,00,000. What is the value of Goodwill, if it is calculated on the basis of four year's purchase of the average profits of the last 3 years?
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Shift 01/06/2023 8:30 AM - 11:30 AM
Correct Answer
Detailed Explanation
Find the average profit of the last three years: Average Profit=Profit Year 1 + Profit Year 2 + Profit Year 33Average Profit=3Profit Year 1 + Profit Year 2 + Profit Year 3
Average Profit=100,000+200,000+300,0003=600,0003=200,000Average Profit=3100,000+200,000+300,000=3600,000=200,000
Multiply the average profit by four to calculate the value of Goodwill: Goodwill=Average Profit×4Goodwill=Average Profit×4
Goodwill=200,000×4=800,000Goodwill=200,000×4=800,000
Therefore, the value of Goodwill, if calculated on the basis of four years' purchase of the average profits of the last three years, is Rs 8,00,000. So, the correct option is (2) Rs 8,00,000.
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