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The average profit for four years is ₹80,000, and goodwill is valued at three years’ purchase. What will be the value of goodwill?

Answer and explanation

Correct answer: ₹2,40,000

Under the average profit method, goodwill = average profit × number of years’ purchase. Therefore, goodwill = ₹80,000 × 3 = ₹2,40,000. Option B represents only one year’s average profit; it must be multiplied by 3 for three years’ purchase. Exam tip: Whenever ‘n years’ purchase’ is given, multiply the average profit by n.

Related tags

GoodwillAverage ProfitYears PurchasePartnership AccountsPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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