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.

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]

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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. 

                                               
                                = (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