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Question 25 Chapter 3 of Class 12 Part – 1 Usha Publication
25. (Average Profits Method/When profits are given) B and C agree to value goodwill at three years purchase of the average profits of the last five years for admitting A as a partner. Profits of the last five years were ₹ 20,000 ; ₹ 15,000 ; ₹ 17,000 ; ₹ 23,000 and ₹ 18,000. Calculate the amount of goodwill.
| Year | Profit |
| 1st | 20,000 |
| 2nd | 15,000 |
| 3rd | 17,000 |
| 4th | 23,000 |
| 5th | 18,000 |
| Total | 93,000 |
| Average Adjusted profit | = | Total adjusted profit |
| No. of year purchases | ||
| = | 93,000 |
| 5 | |
| = | 18,600 |
| Capitalised value of the Goodwill | = | Average adjusted Profits x Number of years’ purchase |
| = | 18,600 x 3 | |
| = | 55,800 |
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Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
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