Goodwill of the firm is valued at two years purchase of the average profit of last four years. The total profits for last four years is ? 40,000. Calculate the goodwill of the firm.
Calculation of Good will:
Good will = Average profit of last 4 year x Number of years of purchase of Average profits.
Average profits = 40,000/4 = Rs. 10000
Good will = Rs. 10,000 × 2 year purchase
= Rs. 20,000
