2 :- Profits for the five years ending 31st March are as follows:-
Year 2021 – Rs 4,00,000; Year 2022 – Rs 3,98,000; Year 2023 – Rs 4,50,000; Year 2024 – Rs 4,45,000 and Year 2025 – Rs 5,00,000.
Calculate the goodwill of the firm on the basis of 4 Years’ purchase of 5 years’ average profit.
Solution:- Average profit method
Average profit of five years = 4,00,000 + 3,98,000 + 4,50,000 + 4,45,000 + 5,00,000/5
= Rs 21,93,000/5
= Rs 4,38,600
Goodwill = Average profit x No. of years purchased
= 4,38,600 x 4
= Rs 17,54,400