Question

A firm had assets Rs. 100000 including cash Rs. 10000. The partners' capital was Rs. 70000 and rest of the balance constituted the reserve. If normal rate of return is 10% and Goodwill of the firm is valued at Rs. 27000 at three years' purchase of super profit, find the average profit of the firm.

Answer 1

Answer:

hey mate

Explanation:

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

Answer 2

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Step 1: Calculation of Capital Employed:

Capital Employed= Total assets- Creditors

75000-5000

70000

Step 2: Calculation of Normal Profit:

$Normal\: Profit= Capital\: Employed× \frac{Normal\: Rate\: Of\: Return}{100}$

$70000×\frac{20}{100}$

14000

Step 3: Calculation of Super Profit from Goodwill:

Super Profit= $\frac{Goodwill} {Number\: of\: year's\: of\: purchase}$

$\frac{24000}{4}$

6000

Step 4: Calculation of Average Profit from Super Profit:

Average Profit= Super Profit+ Normal Profit

14000+6000

20000

Hope it helps úh