Sumit purchased Amit’s business on 1st April 2023. Goodwill was decided to be valued at two years’ purchase of average normal profit of the last four years. The profits for the past four years were:

Year Ended Profits (₹)
31st March 2020 80,000
31st March 2020 1,45,000
31st March 2021 1,60,000
31st March 2022 2,00,000

Books of Account revealed that:

(i) Abnormal loss of ₹ 20,000 was debited to the Profit and Loss Account for the year ended 31st March 2020.

(ii) A fixed asset was sold in the year ended 31st March 2021, and a gain (profit) of ₹ 25,000 was credited to Profit and Loss Account.

(iii) In the year ended 31st March 2022 assets of the firm were not insured due to oversight. The insurance premium not paid was ₹ 15,000.

Calculate the value of goodwill.

[Ans: Goodwill – ₹ 2,82,500.]

Anurag Pathak Changed status to publish April 17, 2023