Sumit purchased Amit’s business on 1st April 2024. Goodwill was decided to be valued at two years’ purchase of average normal profit of the last four years. The profits for the past four years were:
| Year Ended | Profits (₹) |
| 31st March, 2021 | 80,000 |
| 31st March 2022 | 1,45,000 |
| 31st March 2023 | 1,60,000 |
| 31st March 2024 | 2,00,000 |
Books of Account revealed that:
(i) Abnormal loss of ₹ 20,000 was debited to the Profit and Loss Account for the year ended 31st March 2021.
(ii) A fixed asset was sold in the year ended 31st March 2022, and a gain (profit) of ₹ 25,000 was credited to Profit and Loss Account.
(iii) In the year ended 31st March 2023 assets of the firm were not insured due to oversight. The insurance premium not paid was ₹ 15,000.
Calculate the value of goodwill.
[Ans: Goodwill – ₹ 2,82,500.]
Solution:-
