Question

What is meant by number of years’ purchase at the time of valuation of goodwill?

Hint:

Years’ purchase = expectation of abnormal profits in future.

Answer 1

Step 1: Define. Goodwill is often valued as Super Profit $\times$ Number of Years’ Purchase.
Step 2: Meaning. “Years’ Purchase” = number of future years for which firm expects to earn super profits.
Step 3: Example. If super profit = 40,000 and years’ purchase = 3, then goodwill = 1,20,000.
Final Answer: \[ \boxed{\text{Goodwill = Super Profit $\times$ Years’ Purchase}} \] % Quciktip