Multiple choice

The annual accounts have shown the following: Profit for 2010 = Rs. 50,000 (after charging loss on sale of machinery of Rs. 90,000) Loss for 2011 = Rs. 30,000 (after charging loss by fire of Rs. 1, 10,000) Profit for 2012 = Rs. 50,000 (after crediting profit on sale of investment of Rs. 30,000) Calculate the goodwill, which is valued at 4 years purchase of average 3 years' profits:

  1. Rs. 4, 00, 000

  2. Nil

  3. Rs. 3, 20,000

  4. Rs. 1,80,000
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

This is correct answer. Normal profits for 2010 will be: 1, 40,000 (50,000 + 90,000), for 2011: (-) 30,000 + 1, 10,000 = 80,000 and for 2012: 50,000 - 30,000 = 20,000. Thus, average proift is (1, 40,000 + 80,000 + 20,000)/3 = Rs. 80,000. Value of goodwill will be 80,000 * 4 = Rs. 3, 20,000

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