Calculate the good will from the following information goodwill is valued at three years purchase of average profit of the last six years. Profit and losses of the business in the last six years are as follows, [Ans. Rs. 95,000]

Calculate the good will from the following information goodwill is valued at three years purchase of average profit of the last six years. Profit and losses of the business in the last six years are as follows, [Ans.  Rs. 95,000]

1st   year,	Rs, 40,000(Profit)
2nd Year,	Rs, 60,000(Profit)
3rd Year,	Rs, 10,000(Loss)
4th Year,	Rs, 50,000(Profit)
5th Year,	Rs, 30,000 (Loss)
6th Year,	Rs, 80,000(Profit)

---

SOLUTION:

M/S _________________________________

VALUATION OF GOODWILL

AVERAGE PROFIT METHOD

            
GOODWILL = (AVERAGE PROFIT) (NUMBER OF YEARS PURCHASE)

WHERE : AVERAGE PROFIT = (Total Profit - Total loss)/Total No. of Years. 

                                                      = (40000 + 60000 - 10000+ 50000 - 30000 + 80000)/6
                                                      = 190000/6
                                                       = Rs. 95000/3

                                                 

GOOD WILL  = (95000/3) × 3

GOODWILL  = Rs. 95000