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If a firm's goodwill is ₹1,20,000 and its average profit is ₹40,000, what will be the years' purchase?

Answer and explanation

Correct answer: 3 years

Under the average profit method, goodwill = average profit × years' purchase. Therefore, years' purchase = goodwill ÷ average profit = ₹1,20,000 ÷ ₹40,000 = 3 years. Hence, option A is correct. Exam tip: Divide goodwill by average profit to calculate years' purchase.

Related tags

Partnership AccountsGoodwillYears PurchaseAverage ProfitNumericalPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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