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Question
The profit for the last five years of a firm was as follows - the year 2002 Rs. 4,00,000; year 2003 Rs. 3,98,000; year 2004 Rs. 4,50,000; year 2005 Rs. 4,45,000 and year 2006 Rs. 5,00,000. Calculate goodwill of the firm on the basis of 4 years purchase of 5 years average profits.
Options
Rs. 17,54,400
Rs. 17,64,400
Rs. 17,74,400
Rs. 17,84,400
MCQ
Solution
Rs. 17,54,400
Explanation:
Average Profit = Total Profit of Last 5 years/No. of years = `(21,93,000)/5` = 4,38,600
Goodwill = Average Profits × No. of years purchased Rs. 4,38,600 × 4 = Rs. 17,54,400.
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Methods of Valuation of Goodwill
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