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Profits of the last three years are ₹240000, ₹300000 and ₹420000, with weights 1, 2 and 3. What is weighted average profit?

Answer and explanation

Correct answer: ₹350000

The weighted-average method gives greater importance to the years assigned greater weights. Multiply each profit by its weight: ₹240000×1 = ₹240000, ₹300000×2 = ₹600000 and ₹420000×3 = ₹1260000. The weighted total is therefore ₹240000+₹600000+₹1260000 = ₹2100000. The sum of weights is 1+2+3 = 6. Dividing gives weighted average profit = ₹2100000÷6 = ₹350000. Thus option A is correct. Option C is merely the latest profit, option D is the earliest profit, and option B is an incorrect average that does not apply the stated weights. The calculation is relevant to goodwill valuation.

Related tags

GoodwillWeighted-AverageNumericalPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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