A firm's average annual profit is Rs. 50,000. If goodwill is valued at three years' purchase of average profit, what is the value of goodwill?
Correct answer: C. Rs. 150,000
- A. Rs. 100,000
- B. Rs. 125,000
- C. Rs. 150,000
- D. Rs. 200,000
Explanation
Goodwill equals average profit multiplied by the agreed years' purchase. Therefore, Rs. 50,000 × 3 gives Rs. 150,000.
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About Partnership Accounts
Partnership accounts cover the partnership agreement, capital and current accounts, profit and loss appropriation, salaries, interest on capital, interest on drawings and profit-sharing ratios. They also address changes in partnership, including admission, retirement, goodwill, revaluation, dissolution and the settlement of partners’ balances.
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