- 1 Marks
FA – Nov 2020 – L1 – SA – Q7 – Partnership Accounts
Calculation of goodwill using average super profits for a partnership.
Question
The partnership of A, B, and C made a net profit for the past five years as shown below:
| Year | Profit (N’000) |
|---|---|
| 2014 | 30,000 |
| 2015 | 18,000 |
| 2016 | 9,000 |
| 2017 | 15,000 |
| 2018 | 21,000 |
The firm wishes to admit D, for this reason it has decided that the fair value of goodwill is 4 years purchase of the average super profits over the last 5 years. The normal profit is N6,000,000 per annum.
What is the value of goodwill?
A. N42,400
B. N46,400
C. N49,200
D. N50,400
E. N62,200
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