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:

capital invested is 300000

normal rate of return is 10%

Goodwill is calculated on the basis of three years purchase of super profit is 210000

.....

we have to find average profit???

...

normal profit is 10% of 3 lakh that is 30000.

Goodwill = super profit* 3 years of purchase

210000= super profit*3

super profit= 210000/3

super profit= 70000

...

super profit is equal to average profit minus normal profit.

70000=average profit- 30000

average profit= 70000+30000=100000

Answer 2

Average profit = 1,00,000

Explanation:

Given:

Capital invested = 3,00,000

Normal rate of return = 10%

Value of goodwill = 2,10,000

Average profit = ?

Computation:

Value of goodwill = 3 year purchase x Super profit

2,10,000 = 3 x Super Profit

2,10,000 / 3 = Super Profit

70,000 = Super Profit

Normal Profit = Capital invested x Normal rate of return

Normal profit = 3,00,000 x 10%

Normal Profit = 30,000

Super Profit = Average profit - Normal profit

70,000 = Average profit - 30,000

70,000 + 30,000 = Average Profit

1,00,000 = Average Profit

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