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The average profit is ₹42,000, and goodwill is valued at 3.5 years’ purchase. What is the value of goodwill?

Answer and explanation

Correct answer: ₹1,47,000

Under the average profit method, goodwill = average profit × years’ purchase. Therefore, ₹42,000 × 3.5 = ₹1,47,000. Option B would represent only three years’ purchase, not the given 3.5 years. Exam tip: always multiply the average profit by the stated number of years’ purchase.

Related tags

GoodwillAverage Profit MethodGoodwill ValuationPartnership AccountsRetirement Of PartnerGoodwill SettlementReconstitution Retirement Or Death Of A PartnerAccountancy

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