Table showing Adjusted Profit for the last 3 years.
Year Particulars Adjustment Adjusted Profit
2014 Net Profit as per P/L A/c. 20,000
Less: Abnormal Gain (Insurance claims) (35,000) (15,000)
2015 Net Loss as per P/L A/c. (15,000)
Add: Abnormal Loss (Retirement Compensation) 1,05,000 90,000
2016 Net Profit as per P/L A/c. 75,000
Less: Abnormal Gain (Profit on sale of Fixed Assets) (30,000) 45,000
Adjusted Total Profit of Last 3 Years (1,35,000 – 15,000) 1,20,000
Average Profit =Total Profit of Last 3 Years / No of Years = 1,20,000 / 3 = 40,000
Therefore Goodwill = Average profit X No of years of Purchase
= 40,000 X 2 = Rs. 80,000
(i) Abnormal Gain (Profit) should be Subtracted from the Net Profit or Net Loss.
(ii) Abnormal Loss should be Added with the Net Profit or Net Loss.