Profits of a firm for the year ended 31st March for the last five years were

8 :- Profits of a firm for the year ended 31st March for the last five years were

Calculate the value of goodwill on the basis of three years’ purchase of weighted average profit after assigning weights 1, 2, 3, 4 and 5 respectively to the profits for years ended 31st March 2021, 2022, 2022, 2024 and 2025.

Solution:-  Calculation of weighted average profit

Weighted average profit = Total weighted profits/Total weights
= 3,48,000/15 = Rs 23,200

Calculation of Goodwill of the firm
Goodwill = Weighted Average Profit x No. of years purchased
               = 23,200 x 3
               = Rs 69,600