A and B are partners sharing profits and losses in the ratio of 3 : 2. They agree to take C into partnership for 1/3rd share. For this purpose, goodwill is to be valued at two year's purchase of the average profit of last four years which were as follows :
`{:(,," Rs."),("Year ending on 31st March 2014",,"50,000 (Profit)"),("Year ending on 31st March 2015",,"1,20,000 (Profit)"),("Year ending on 31st March 2016",,"1,80,000 (Profit)"),("Year ending on 31st March 2017",,"70,000 (Loss)"):}`
On 1st April, 2016 a Motor bike costing Rs. 50,000 was purchased and debited to travelling expenses account, on which depreciation is to be charged @ 20% p.a. calculate the value of goodwill.

Explanation

Calcution of Average Profits :
`{:(,,"Rs."),("31st March 2014",,"50,000 (Profit)"),("31st March 2015",,"1,20,000 (Profit)"),("31st March 2016",,"1,80,000 (Profit)"),("31st March 2017",,"30,000"^((1))("Loss")),(,,bar ul("3,20,000")):}`
Average Profit = Rs. 3,20,000 `div` 4 = Rs. 80,000
Goodwill = Average Profit `xx` Number of year's purchase
= 80,000 `xx` 2 = Rs. 1,60,000.