Calculate the value of goodwill according to average profit method. Goodwill is valued at three years purchase of last four year average profit. The profits and losses for the last four years are. [Ans. Rs. 27,000]

Calculate the value of goodwill according to average profit method. Goodwill is valued at three years purchase of last four year average profit. The profits and losses for the last four years are. [Ans. Rs. 27,000]

1st Year Rs,	10,000(Profit)
2nd Year Rs,	12,000(Profit)
3rd Year Rs,	4,000(Loss)
4th Year Rs,	18,000(Profit)

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SOLUTION:

M/S ___________________________________

VALUATION OF GOODWILL

AVERAGE PROFIT METHOD

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

WHERE : AVERAGE PRFIT = (10000 + 12000 - 4000 + 18000)/4

                                                = 36000/4

Average Profit = Rs. 9000

                                                

                                                

GOODWILL  = 9000 × 3

GOODWILL = Rs. 27000