# Divya Purchased Jyoti's Business With Effect From 1st April, 2019........Last Three ​Financial Years Were :- Goodwill

Divya purchased Jyoti's business with effect from 1st April, 2019. Profits shown by Jyoti's business for the last three ​financial years were
Divya purchased Jyoti's business with effect from 1st April, 2019. Profits shown by Jyoti's business for the last three ​financial years were:

 2016-17 ₹ 1,00,000 (including an abnormal gain of ₹ 12,500). 2017-18 ₹ 1,25,000 (after charging an abnormal loss of ₹ 25,000). 2018-19 ₹ 1,12,500 (excluding ₹ 12,500 as insurance premium on firm’s property- now to be insured).

Calculate the value of firm's goodwill on the basis of two year's purchase of the average profit of the last three years.

Adjusted Profits are as follows:

2016-17 = 100000 - 12500 (abnormal gain included is now removed)= 87,500

2017-18 = 125000 + 25000 (abnormal loss charged now added) = 1,50,000
2018-19 = 112500 - 12500 (insurance premium being an expense will now be reduced from the profits) = 1,00,000

Average Profits = [("Normal Profits for 2016-17")+("Normal Profits for 2017-18")+("Normal Profits for 2017-18")]/3

= [("87,500")+("1,50,000")+("1,00,000")]/3

= 1,12,500

Goodwill = Average Profits of last years \times No. of years Purchase

Goodwill = 1,12,500 \times 2

= Rs. 2,25,000.

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