Question

A firm has assets worth Rs. 7,00,000 and liabilities worth Rs. 2,00,000. It has General Reserve amounting to Rs. 50,000. If normal rate of return of the firm is 10% and goodwill of the firm based on 2 year’s purchase of its super profit is Rs. 60,000, the average profit of the firm will be…………​

Answer 1

Answer:

5% i did in my mind calculation may be wrong also

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Answer 2

Answer:

(i) Capitalisation of Super Profit Method:

(i) Capitalisation of Super Profit Method:Step 1: Calculation of Capital Employed:

(i) Capitalisation of Super Profit Method:Step 1: Calculation of Capital Employed:Capital Employed= 5500000- 1400000

(i) Capitalisation of Super Profit Method:Step 1: Calculation of Capital Employed:Capital Employed= 5500000- 1400000 = 4100000

Step 2: Calculation of Normal Profit:

Step 2: Calculation of Normal Profit:Normal Profit= 4100000 * [10/100]

= 410000

Step 3: Calculation of Average Profit:

Step 3: Calculation of Average Profit:Average Profit= 500000

Step 4: Calculation of Super Profit:

Step 4: Calculation of Super Profit:Super Profit= 500000- 410000

Step 4: Calculation of Super Profit:Super Profit= 500000- 410000 = 90000

Step 5: Calculation of Goodwill:

Step 5: Calculation of Goodwill:Goodwill= 90000 * [100/10]

Step 5: Calculation of Goodwill:Goodwill= 90000 * [100/10] = 900000

(ii) Capitalisation of Average Profit Method:

(ii) Capitalisation of Average Profit Method:Step 1: Calculation of Capitalised value of Profit:

(ii) Capitalisation of Average Profit Method:Step 1: Calculation of Capitalised value of Profit:Capitalised value of Profit= Profit * [100/ Normal Rate of return]

= 500000 * [100/10]

= 500000 * [100/10]= 5000000

Step 2: Calculation of Capital Employed:

Step 2: Calculation of Capital Employed:Capital Employed= 5500000- 1400000

Step 2: Calculation of Capital Employed:Capital Employed= 5500000- 1400000 = 4100000

Step 3: Calculation of Goodwill:

Step 3: Calculation of Goodwill:Goodwill= Capitalised value of Profit- Capital Employed

Step 3: Calculation of Goodwill:Goodwill= Capitalised value of Profit- Capital Employed = 5000000- 4100000

Step 3: Calculation of Goodwill:Goodwill= Capitalised value of Profit- Capital Employed = 5000000- 4100000 = 900000

Explanation:

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