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If goodwill is ₹96,000 and average profit is ₹32,000, what will be the years’ purchase?

Answer and explanation

Correct answer: 3 years

The governing formula under the average-profit method is Goodwill = Average Profit × Years’ Purchase. To find the years’ purchase, rearrange the formula: Years’ Purchase = Goodwill ÷ Average Profit. Substituting the given amounts gives ₹96,000 ÷ ₹32,000 = 3. Therefore, the firm’s goodwill represents three years of its average profit, and option A is correct. The alternatives can be checked directly: two years would produce goodwill of ₹64,000, four years would produce ₹1,28,000, and one year would produce ₹32,000. None of those values equals the stated ₹96,000. Thus the answer is not a percentage or a rupee amount; it is a number of years.

Related tags

GoodwillYears PurchaseAverage ProfitValuationAccountancyClass 12 McqPartnership Accounts Basic Concepts

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