Question

7. On 1 April 2018 an existing firm had assets of Rs. 2,00,000 including cash of Rs. 4,000. Its creditors to Rs. 10,000 on the date. The partner's capital accounts showed a balance of Rs. 1,60,000 while the general reserve amounted to Rs. 30,000. If the normal rate of return is 15% and the goodwill of the firm is valued at Rs. 36,000 at 3 years purchase of super profit, find the average profits of the form​

Answer 1

Answer:

Goodwill = Super Profit

3 year's purchase <br> 36,000 = Super Profits

3 <br> Super Profits =

Rs. 12,000 <br> Capital Employed = Assets - Creditors <br> = Rs. 2,00,000 - Rs. 10,000 = Rs, 1,90,000. <br> OR <br> =Partner's Capital + General Reserve <br> = Rs. 1,60,000 + Rs. 30,000 = Rs. 1,90,000 <br> Normal Profits =

<br> = Rs. 1,90,000

Rs. 28,500 <br> Super Profits = Average Profits - Normal Profits <br> Hence, Average Profits = Super Profits + Normal Profits <br> = Rs. 12,000 + Rs. 28,500 = Rs. 40,500.

Answer 2

Answer:

Goodwill = Super Profit × 3 year's purchase

36,000 = Super Profits × 3

Super Profits = 36,0003= Rs. 12,000

Capital Employed = Assets - Creditors

= Rs. 2,00,000 - Rs. 10,000 = Rs, 1,90,000.

OR

=Partner's Capital + General Reserve

= Rs. 1,60,000 + Rs. 30,000 = Rs. 1,90,000

Normal Profits = Capital Employed×Normal Rate of Return100

= Rs. 1,90,000 ×15100= Rs. 28,500

Super Profits = Average Profits - Normal Profits

Hence, Average Profits = Super Profits + Normal Profits

= Rs. 12,000 + Rs. 28,500 = Rs. 40,500.