Question

Avrage profit of a firm from last few years is 200000 and the normal rate of returm in a similar business is 10% if the goodwill of a firm is 250000 at 4 years purchase of super profit find the capital employed

Answer 1

Answer:

Capital Employed = 13,75,000

Explanation:

Goodwill = Super Profit × 4 years purchase

Or, ₹2,50,000 = Super profit × 4

Or, Super profit = 62,500

Average Profit = ₹2,00,000

Super Profit = Average Profit - Normal Profit

Or, ₹62,500 = ₹2,00,000 - Normal profit

Or, - Normal Profit = ₹62,500 - 2,00,000

Or, - Normal profit = - ₹1,37,500

Or, Normal profit = ₹1,37,500

Normal rate of return = 10%

Normal profit = Capital Employed × Nrr/10

Or, ₹1,37,500 = Capital Employed × 10/100

Or, Capital employed = ₹1,37,500 × 100 / 10

Or, Capital employed = ₹13,75,000

Answer 2

Capital Employed = 13,75,000

Explanation:

Computation of super profit:

Goodwill = Super Profit × 4 years purchase

2,50,000 = Super profit × 4

Super profit = 62,500

Computation of Normal Profit:

Normal Profit = Average Profit - Super Profit

Normal Profit = 2,00,000 - 62,500

Normal profit = 1,37,500

Computation of capital employed:

Capital employed = Normal profit (100/NRR)

Capital employed = 1,37,500(100 / 10)

Capital employed = ₹13,75,000

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