1. The profits of the firm for the last five years are 2002 Rs. 20,000; 2003 Rs. 16,000; 2004 Rs. 24,000; 2005 Rs. 8000; 2006 Rs. 12,000. Calculate the goodwill of the firm. [Ans. Rs. 16,000]
SOLUTION:
M/S _________________________________
VALUATION OF GOODWILL
AVERAGE PROFIT METHOD
GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)
WHERE :
AVERAGE PRFIT = (Total Profit - Total Loss)/Total Number of years.
AVERAGE PRFIT = (Total Profit - Total Loss)/Total Number of years.
= (20000+16000+24000+8000+12000)/5
= 80000/5
= Rs. 16,000
GOODWILL = Rs. 16000 [Since, No. of Years Purchase is not given]
GOODWILL = Rs. 16000
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