Question

14 (Super Profit Method) A firm has total seets of ? 2,50,000 including cash of 30,000. The
creditors are ? 40,000. Normal rate of return is 10% on capital employed. Goodwill of the
firm is valued at? 1,20,000 at four years purchase of super profite.
Find the average profits.
Ans. 2 51,000]
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Answer 1

Answ

Step 1: Calculation of Capital Employed:

Capital Employed= Total assets- Creditors

= 75000-5000

= 70000

Step 2: Calculation of Normal Profit:

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

= 70000* [20/100]

= 14000

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

= 14000+6000

= 20000