Question : The profits earned by a business over the last 5 years are as follows: Rs.12,000; Rs.13,000; Rs.14,000; Rs.18,000 and Rs.2,000 (loss). Based on two years purchase of the last 5 years profits, value of goodwill will be:
Option 1: Rs.23,600
Option 2: Rs.22,000
Option 3: Rs.1,10,000
Option 4: Rs.1,18,000
Correct Answer: Rs.22,000
Solution :
Average Profit = Sum of profits/Total number of years = (Rs.12,000 + Rs.13,000 + Rs.14,000 + Rs.18,000 - Rs.2,000)/5 = Rs.55,000/5 = Rs.11,000. Goodwill = Average Profit X Number of years purchase = Rs.11,000 X 2 = Rs.22,000. Hence, the correct option is 2.
Question : The profits earned by a business over the last 5 years are as follows:
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