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If the average profit is ₹25,000 and the number of years’ purchase is 4, what will be the goodwill of the firm under the average profit method?

Answer and explanation

Correct answer: ₹1,00,000

Under the average profit method, goodwill = average profit × number of years’ purchase. Therefore, goodwill = ₹25,000 × 4 = ₹1,00,000. ₹25,000 represents the average profit for one year, not the goodwill. In the exam, write the formula first and then multiply.

Related tags

GoodwillAverage Profit MethodYears PurchasePartnership AccountsNumericalGoodwill SettlementReconstitution Retirement Or Death Of A PartnerAccountancy

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