Average Profit Method Q. 1. A purchases business from B on 31st March, 2021. Profits earned by B for the preceding 4 years ending on 31st March, each year were :- 2018 Profits 60,000; 2019 Profits 1,00,000; 2020 Loss 10,000; and 2021 Profits 2,00,000. You are informed that :- I. Profits of 2018 included a non-recurring income of 25,000. II. Profits of 2019 were reduced by 40,000 due to an extraordinary loss on account of theft. III. In 2020, a machine was destroyed by fire and 1,50,000 being terminal depreciation was charged to profits. IV. Profits of 2021 included *15,000 as income from investments. V. A thinks to appoint an accountant in the business to maintain the books of accounts. The accountant will get a salary of *2,000 per month. VI. A, at the time of purchasing the business, was employed in D.C.M. and was getting *2,000 per month. He intends to replace the manager of the business who at present is getting 1,500 per month. You are required to value the goodwill at three times of the average profits of the last four years. [Ans. Goodwill ₹2,85,000.] ​