Additional advertisement expense of (₹25000) will be incurred every year in future. What will be its effect on average profit for goodwill valuation?

Correct answer: Average profit will decrease by (₹25000)

For goodwill valuation, average profit should represent the profit that the business is reasonably expected to earn in the future. A regular expense that will continue every year must therefore be considered, even if it was not included in earlier years. Such an expense reduces future profit rather than increasing it.

The additional advertisement expense is ₹25,000 every year. Since it is a recurring future expense, the maintainable or adjusted average profit is reduced by ₹25,000. Hence option B is correct. It would be wrong to call the goodwill itself ₹25,000, because goodwill depends on methods such as average profit or super profit and also on the relevant valuation data.