Multiple choice

The following particulars are available in respect of the business carried on by a partnership firm: Trading Results: $2011$ Loss Rs. $5,000$ $2012$ Loss Rs. $10,000$ $2013$ Profit Rs. $75,000$ $2014$ Profit Rs. $60,000$ You are required to compute the value of goodwill on the basis of $5$ years purchase of average profit.

  1. $Rs.1,25,000$
  2. $Rs.1,50,000$
  3. $Rs.10,000$
  4. $Rs.1,20,000$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Total profit = -5000 - 10000 + 75000 + 60000 = 120000. Average profit = 120000 / 4 = 30000. Goodwill = 5 * 30000 = 150000.

AI explanation

To compute the value of goodwill, we first find the average profit by summing the profits and losses, giving -5000 minus 10000 plus 75000 plus 60000 equals 120000. Dividing this by four years yields an average profit of Rs. 30,000. We then multiply this average profit by 5 years of purchase to arrive at a goodwill value of Rs. 1,50,000.

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