Mona, Reena and Sona have been carrying on a partnership business and good will of their firm is to be valued at three years purchase of the average profit for the last five years. The profit and losses for the last five years have been. 1st Year Rs. 16,000, 2nd Year, 15,000, 3rd Year, 8,000(Loss), 4th Year, 7,000, 5th Year, 10,000.

Mona, Reena and Sona have been carrying on a partnership business and good will of their firm is to be valued at three years purchase of the average profit for the last five years. The profit and losses for the last five years have been.  1^st Year Rs. 16,000, 2^nd Year, 15,000, 3^rd Year, 8,000(Loss), 4^th Year, 7,000, 5^th Year, 10,000. [Ans. Rs. 24,000]          

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SOLUTION:

M/S MONA, REENA & SONA Co.

VALUATION OF GOODWILL

AVERAGE PROFIT METHOD

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

WHERE : AVERAGE PRFIT = (Total Profit - Total Loss)/Total Number of Years. 

                                                
                                                    = (16000 + 15000 - 8000 + 7000 + 10000)/5
                                                    = 40000/5

Average Profit  = Rs. 8000

                                                

                                                

GOODWILL  = 8000 × 3

GOODWILL = Rs. 24000