Question

14. On 1st April, 2015 an existing firm has assets of 80,000 including cash of 5,000. The
Partner's Capital accounts showed a balance of 60,000 and reserves constituted the rest. If
the normal rate of return is 20% and the goodwill of the firm is valued at 24.000 at 4 years
purchase of super profits, find the average profits of the firm.
[Ans. 22.0001​

Answer 1

Answer:

Step 1: Calculation of Capital Employed:

Capital Employed= Total assets- Creditors

= 80000-5000

= 75000

Step 2: Calculation of Normal Profit:

Normal Profit= Capital Employed* [Normal Rate Of Return/100]

= 75000* [20/100]

= 15000

Step 3: Calculation of Super Profit from Goodwill:

Super Profit= Goodwill/ Number of year's of purchase

= 24000/4

= 6000

Step 4: Calculation of Average Profit from Super Profit:

Average Profit= Super Profit+ Normal Profit

= 15000+6000

= 21000