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The profits for four years are ₹30,000, ₹40,000, ₹50,000 and ₹60,000, respectively. Goodwill is valued at two years’ purchase. What is the value of goodwill?

Answer and explanation

Correct answer: ₹90,000

Average profit = (₹30,000 + ₹40,000 + ₹50,000 + ₹60,000) ÷ 4 = ₹45,000. Goodwill at two years’ purchase = Average profit × Number of years’ purchase = ₹45,000 × 2 = ₹90,000. Therefore, option C is correct. Exam tip: multiply the average profit by the specified years’ purchase, not the total profit.

Related tags

GoodwillAverage ProfitYears PurchasePartnership AccountsRetirement Of PartnerGoodwill SettlementReconstitution Retirement Or Death Of A PartnerAccountancy

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