Question : Weighted average profit method of calculating goodwill is used when
Option 1: Profits are unequal
Option 2: Profits are fluctuating
Option 3: Profit shows a trend
Option 4: None of the above
Answer (1)
24th Jan, 2024
Correct Answer: Profit shows a trend
Solution : Answer = Profit shows a trend
The weighted average profit method is applied when profits exhibit a consistent trend over a certain period. By averaging the profits over this period, a more stable representation of the company's earnings is obtained, providing a reliable basis for calculating goodwill that reflects the underlying performance of the business.
Hence, the correct option is 3.
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