Simple Average profit method: Simple average profit method = adjusted profit / number of years Goodwill = Average profit* number of years purchases Example: Company ABC is well established Company. Company 6 years profit is given below: Years Profit 2006 2,50,000 2007 2,65,000 2008 3,00,000 2009 4,85,000 2010 3,25,000 2011 5,00,000 Find out the goodwill value with the help of Average profit method if the number of years purchase is 2. Solution: Average profit = (2,50,000 + 6, 65,000 + 3,00,000 + 4,85,000 + 3,25,000 + 5,00,000) / 6 = 21, 25,000/ 6 = Rs.3, 54, 166.667 Goodwill = 3, 54, 166.667*2 = Rs. 7, 08,333 Example: Company PQR 5 years profit is given below: Years Profit 2010 50,000 2011 1,25,000 2012 1,70,000 2013 2,65,000
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