Annu, Baby and Chetan are partners in a firm sharing profits and losses equally. They decide to take Deep into partnership from 1st April, 2019 for 1/5th share in the future profits. For this purpose, goodwill is to be valued at 100% of the average annual profits of the previous three or four years, whichever is higher. The annual profits for the purpose of goodwill for the past four years were:
| Year Ended | Profit (₹) |
| 31st March, 2019 | 2,88,000; |
| 31st March, 2018 | 1,81,800; |
| 31st March, 2017 | 1,87,200; |
| 31st March, 2016 | 2,53,200. |
Calculate the value of goodwill.
Average Profits of Previous three years
= `\frac{2,88,000+1,81,8000+1,87,200}{3}`= Rs. 2,19,000
Average Profits of Previous four years
= `\frac{2,88,000+1,81,800+1,87,200+2,53,200}{4}`= Rs. 2,27,550
Since,
= `\frac{2,88,000+1,81,8000+1,87,200}{3}`= Rs. 2,19,000
Average Profits of Previous four years
= `\frac{2,88,000+1,81,800+1,87,200+2,53,200}{4}`= Rs. 2,27,550
Since,
The average profits of previous four years is greater than the average profits of previous three years.