Use the following information to answer this question Year ₦ 1991 1992 1993 1994 14,000 24,000 10,000 16,000 It has been decided to value goodwill at 2 year...
Question 1 Report
Use the following information to answer this question
It has been decided to value goodwill at 2 years purchase of average profit for the past 4 years. The value of goodwill is
Answer Details
To calculate the value of goodwill, we need to first calculate the average profit for the past 4 years. We can do this by adding up the profits for each year and then dividing by 4:
Average profit = (14,000 + 24,000 + 10,000 + 16,000) / 4 = 16,000
Next, we need to calculate 2 years' purchase of the average profit:
2 x 16,000 = 32,000
Therefore, the value of goodwill is ₦32,000. This is because the value of goodwill is determined by the number of years' purchase of the average profit.
Among the options given, the correct answer is 32,000.
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