Purav and Purvi are partners in a firm

3 :- Purav and Purvi are partners in a firm sharing profits and losses in the ratio of 2 : 1. They admit Parv into a partnership for 1/4th share on 1st April, 2025. For this purpose, goodwill is to be valued at four times the average annual profit of the previous four or five years, whichever is higher. The agreed profits for goodwill purposes of the past five years ended 31st March, are

Calculate the value of goodwill.

Solution:-

Average profit of four year = 15,500 + 10,000 + 16,000 + 15,000/4
                                            = 56,500/4
                                          = Rs 14,125

Average profit of five years = 14,000 + 15,500 + 10,000 + 16,000 + 15,000/5
                                           = 70,500/5
                                           = Rs 14,100

As average profit of four year is greater
Goodwill = 14,125 x 4 = Rs 56,500