A and B are partners in a firm sharing profits and losses in the ratio of 2 : 1. They decide to take C into partnership for 1/5th share on 1st April 2017. For this purpose goodwill is to be valued at 80% of the average annual profits of the previous three or four years, whichever is higher.
The average profits for the last four years are :
`{:(,," Rs."),("Year ending on 31st March 2014",,"98,000"),("Year ending on 31st March 2015",,"80,000"),("Year ending on 31st March 2016",,"76,000"),("Year ending on 31st March 2017",,"1,20,000"):}`
Calculate the value of Goodwill.

Explanation

Calculation of Average Profits


4 year's average profit is higher than 3 year's average profit. Hence, the value of goodwill will be 80% of Rs. 93,500 = Rs. 74,800.