Question

Capital investment in a firm is ₹3,00,000 and normal rate of return on capital is 10%.value of Goodwill calculated on the basis of three year's purchase of average super profit 2,10,000 .Average profits will be​

Answer 1

Answer:

540000

Explanation:

1. the formula of super profit is average profit minus normal profit
2. formula of normal profit is total capital employed X normal rate of return divided by 100

Answer 2

Average profit = 1,00,000

Explanation:

Given:

Capital Investment = 3,00,000

Normal rate of return = 10%

Goodwill = 2,10,000 (3 year purchase of super profit)

Average profit = ?

Calculation of Normal profit = Capital Investment x Normal rate of return

= 3,00,000 x 10%

= 30,000

Super Profit =  Average profit - Normal Profit

Goodwill =  year of purchase x (Super profit)

Goodwill =  year of purchase x (Average profit - Normal Profit)

2,10,000 = 3 x (Average profit - 30,000)

2,10,000 / 3 = Average profit - 30,000

70,000 = Average profit - 30,000

70,000 + 30,000 = Average profit

Average profit = 1,00,000

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