Question

A firm’s profit for the last 5 years were Rs. 20,000, Rs. 30,000, Rs. 40,000. Rs. 50,000, and Rs. 60,000. Calculated the value of firm’s goodwill on the basis of three years purchase of weighted average profit after using weight of 1, 2, 3, 4, 5 respectively.

Answer 1

Weight average profit = (Total product)/(Total weight)

= 7,00,000/15

= Rs. 46,667 capps

Goodwill = Weighted avg profit x Number of years purchase 

= 46,667 x 3 

= Rs. 1,40,000 (appr.)