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Profit of a firm for the last five years...

Profit of a firm for the last five years were:

Calculate value of goodwill on the basis of three years' purchase of the weighted average profit after assigning weights 1, 2, 3, 4 and 5 respectively to the profits for years ended 31st March, 2015, 2016, 2017, 2018 and 2019.

Text Solution

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Weighted Average Profit`=("Total Normal Profit")/("Number of Years")=("Rs. 6,96,000")/(15)=` Rs. 46,400.
Goodwill `=` Weighted Average Profit `xx` No. of Years' Purchase
` " " =` Rs. 46,400 `xx` 3 `= `Rs. 1,39,200.
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