Question

Average profit of the firm during the last few years are Rs.80000 and the normal rate of return in a similar business is 10%. If the goodwill of the firm is Rs. 100000 at 4 years purchase of super profit. Find the capital employed by the firm.

Answer 1

Explanation:

hope it helps u..........

Answer 2

Capital Employed = Rs. 5,50,000

Explanation:

• Average profit = Rs. 80,000
• Normal Rate of Return = 10%
• Goodwill of the firm = Rs. 1,00,000
• No. of years purchase = 4
• Capital Employed = ??

Solution :

Goodwill of the firm = Rs. 1,00,000

No. of years purchase = 4

Goodwill = Super Profit × No. of years purchase

1,00,000 = Super Profit × 4

Super Profit = 1,00,000/4

Super Profit = Rs. 25,000

• Super Profit = Average Profit - Normal Profit

25,000 = 80,000 - Normal Profit

Normal Profit = 80,000 - 25,000

Normal Profit = Rs. 55,000

• Normal Profit = Capital Employed × (Normal Rate of Return/100)

55,000 = Capital Employed × (10/100)

Capital Employed = 55,000 × (100/10)

Capital Employed = Rs. 5,50,000

Therefore, Capital Employed = Rs. 5,50,000