- 1 Marks
Question
The Partnership of X, Y, and Z made a net profit for the past five years as shown below:
Year Profit (₦’000)
2009 30,000
2010 18,000
2011 9,000
2012 15,000
2013 21,000
The firm intends to admit V into the business and for this purpose has decided to fair value goodwill at 4 years purchase of the average super profits over the last 5 years on a normal profit of ₦6,000,000 per annum.
What is the value of goodwill?
A. ₦42,400,000
B. ₦46,400,000
C. ₦49,200,000
D. ₦50,400,000
E. ₦62,200,000
Answer
D
Explanation:
The correct answer is D because the average profit over the five years is calculated as:
(30,000 + 18,000 + 9,000 + 15,000 + 21,000) / 5 = ₦18,600,000.
Super profit = Average profit – Normal profit = ₦18,600,000 – ₦6,000,000 = ₦12,600,000.
Goodwill = Super profit × 4 years = ₦12,600,000 × 4 = ₦50,400,000.
- Tags: Goodwill, Partnership, Super Profit, Valuation
- Level: Level 1
- Uploader: Theophilus