Multiple choice

The profit of last five years are Rs. 1, 70, 000, Rs. 1, 80, 000, Rs. 1, 40, 000, Rs. 2, 00, 000 and Rs. 1, 60, 000. Find the value of goodwill, if it is calculated on average profit of last five year on the basis of three years purchase.

  1. Rs. 1, 70, 000

  2. Rs. 5, 10, 000

  3. Rs. 5, 30, 000

  4. Rs. 5, 70, 000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Average profit = (1,70,000 + 1,80,000 + 1,40,000 + 2,00,000 + 1,60,000) / 5 = Rs. 1,70,000. Goodwill at 3 years purchase = 1,70,000 x 3 = Rs. 5,10,000. Option A is just the average profit, not goodwill value.

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