Q.Value of the goodwill of Arul Enterprises is ₹ 1,20,000, Average profit is ₹ 40,000. Calculate the number of years of purchase.

Rearranging the average profit formula, the number of years of purchase is 3. Concept Under the average profit method, goodwill is valued as: $\text{Goodwill} = \text{Average Profit} \times \text{Number of years of purchase}$ Given - Goodwill = ₹1,20,000 - Average profit = ₹40,000 Computation Rearranging the formula to find the number of years of purchase: $\text{Number of years of purchase} = \frac{\text{Goodwill}}{\text{Average Profit}} = \frac{1,20,000}{40,000} = 3 \text{ years}$ Thus goodwill has been valued at 3 years' purchase of average profit — a standard calculation in the Good …