Question

A firm has assets of ₹1200000 and liabilities of ₹900000. The normal rate of return is 10%. Goodwill is valued at 3 times the average super profit of the firm as ₹21000. Find out the Average Profit of the firm.​

Answer 1

$Capital \:employed \:=\:Assets-\: Liabilities \\ \\ ₹1200000 - ₹900000 = ₹300000 \\ \\ normal \: profit \: = \: capital \: employed \: \times \: normal \: rate \: of \: intrest \\ \\ \frac{30000 \cancel0 \times 1 \cancel0}{1 \cancel0 \cancel0} = ₹30000 \\ \\ Goodwill\:=\: super \: profit \: \times 3 \\ \\ 21000 = super \: profit \: \times 3 \\ \\ super \: profit \: = \cancel\frac { 21000}{3} = ₹7000 \\ \\ 7000 = Average \: profit - 30000 \\ \\ \therefore \: Average \: profit \: = \: 30000 + 7000 = ₹37000$

Answer 2

The answer to this question is ₹37,000.

Given,

Assets = ₹12,00,000 Liabilities = ₹9,00,000 NRR = 10% Goodwill = ₹21000, when valued at 3 times the average super profit of the firm.

To Find,

Average profit of the firm.

Solution,

This question can be solved by following these simple steps.

Capital Employed by the firm = Assets - Liabilities

= ₹12,00,000 - ₹9,00,000 = ₹3,00,000

Normal profit = Capital Employed × Normal Rate of Return (NRR)

= ₹3,00,000 × 10% = ₹30,000

Now, the Goodwill of the firm = Super profit × 3      (Given)

⇒ 21,000 = Super profit × 3        (∵ Goodwill = ₹21,000)

Super profit = 21,000 ÷ 3 = 7,000

Now, we know that Super profit = Average Profit - Normal Profit

⇒ 7,000 = Average Profit - 30,000

⇒ Average Profit = 30,000 + 7,000 = 37,000

Hence, the Average profit of the firm =  ₹37,000.

Thus, the answer to this question is ₹37,000.

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