Calculate the value of goodwill
at 3 times the average profit of last 5 years. The profits
were:
|
Year
|
Profit
/ Loss Amount
|
|
2001
– 2002
2002
– 2003
2003
– 2004
2004
– 2005
2005
– 2006
|
`. 14,500 Profit
`. 9,000
Loss
`. 16,700 Profit
`. 9,500
Profit
`. 13,300 Profit
|
Solution:
|
Year
|
Total Profit
|
Total loss
|
|
2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
|
14500
16700
9500
13300
|
9000
|
|
54000
|
9000
|
Average Profit = Total Profit – Total Losses
No. of years
= 54,000 – 9,000
5
= 45000 = 9000
5
Goodwill = Average Profit ´ No. of years Purchase
= 9,000 ´ 3
= 27,000
