Question

4. Capital employed * NRR/100 = ? *
Average Profit
Total Profit
Normal Profit​

Answer 1

Answer :

• Normal Profit

Capital Employed × NRR / 100 = Normal Profit

NRR = Normal Rate of Return

Steps Involved in Super Profits Method :

1. Calculate The Average Profit

2. Calculate The Normal Profit on the capital employed on the basis of the normal rate of return.

3. Calculate The super Profits by deducting normal profit from the average Profits.

4. Calculate Goodwill by multiplying the super Profits by the given number of years of Purchase.

${\overline{\boxed{\sf{Normal \: Profit \: = \tfrac{Capital \: Employed \times Normal \: Rate \: of \: Return}{100} }}}}$

${\overline{\boxed{\sf{Super \: Profits \: = Average \: Profit \: - Normal \: Profit }}}}$

${\overline{\boxed{\sf{Goodwill = Super \: Profits \: \times No.of \: years \:of \: Purchase}}}}$