Question

On 1s' April 2016, an existing firm had assets of Rs. 10,00,000 including cash of Rs.
20,000. Its creditors amounted to Rs. 50,000 on that date. The partner's capital
accounts showed a balance of Rs. 8,00,000 while the reserve fund amounted to Rs.
1,50,000. If the normal rate of return is 15% and the goodwill of the firm valued at
Rs. 1,80,000 at 3 years purchase of super profit, find the average profit of the firm.
A firm has Current ratio of 3.5:1 and quick ratio of 2:1. Assuming Inventory at Rs.
30,000. What will be the amount of Current Assets, Quick Assets?​

Answer 1

Answer:

Step 1: Calculation of Capital Employed:

Capital Employed= Total assets- Creditors

= 75000-5000

= 70000

Step 2: Calculation of Normal Profit:

Normal Profit= Capital Employed* [Normal Rate Of Return/100]

= 70000* [20/100]

= 14000

Step 3: Calculation of Super Profit from Goodwill:

Super Profit= Goodwill/ Number of year's of purchase

= 24000/4

= 6000

Step 4: Calculation of Average Profit from Super Profit:

Average Profit= Super Profit+ Normal Profit

= 14000+6000

= 20000

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