To find the value of goodwill, we can use the following formula:

Goodwill = Average Profit x Number of Years of Purchase

Here, we are given the profits of the preceding four years as follows:

2001 - Rs. 16,000

2002 - Rs. 20,000

2003 - Rs. 18,000

2004 - Rs. 26,000

To calculate the average profit, we add the profits of the four years and divide by 4:

Average Profit = (16,000 + 20,000 + 18,000 + 26,000) / 4

Average Profit = 20,000

Let's assume that the number of years of purchase is three, as per the given question.

So, the value of goodwill can be calculated as:

Goodwill = Average Profit x Number of Years of Purchase

Goodwill = 20,000 x 3

Goodwill = 60,000

Therefore, the value of goodwill is Rs. 60,000.

Verified answer

[tex] \huge \red {Answer} [/tex]

• Goodwill is valued on the basis of three years purchase of average profits of the preceding four years. The profits of previous four years were 2001 - Rs. 16,000; 2002- Rs. 20,000; 2003 - Rs. 18,000; 2004 - Rs. 26,000. Find the value of goodwill.

Step-by-step explanation:

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