Question : Goodwill is to be calculated at one year's purchase of the average of last three years profit. The profit of the first year was Rs.60,000, second year twice the profit of the first year and the third year one and half times of the profit of second year, goodwill amount will be:
Option 1: Rs.1,50,000
Option 2: Rs.1,20,000
Option 3: Rs.1,20,000
Option 4: Rs.1,30,000
Correct Answer: Rs.1,20,000
Solution : Profit: 1st Year = Rs.60,000 2nd Year = 2 X Rs.60,000 = Rs.1,20,000 3rd Year = 1.5 X 1,20,000 = Rs.1,80,000Average Profit = Sum of profits/Total number of years = (Rs.60,000 + Rs.1,20,000 + Rs.1,80,000)/3 = Rs.3,60,000/3 = Rs.1,20,000. Goodwill = Average Profit X Number of years purchase = Rs.1,20,000 X 1 = Rs.1,20,000. Hence, the correct option is 2.
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