On 1st April 2020, An exiting firm had assets of Rs. 75000 including cash of rs 5,000. The partners capital account show a balance of rs. 60,000 and reserve constituted a rest. if the normal rate of return is 10% and the of the goodwill of the firm is valued at Rs. 24,000 at four years of super profit, find the average profit of the firm.
Answers
Given that:-
Calculation of Capital Employed:
Capital Employed= Total assets- Creditors
= 75000-5000
= 70000
Now,
Calculation of Normal Profit:
Normal Profit = Capital Employed × Normal
Rate Of Return / 100
= 70000 × [20/100]
= 14000
Then
Calculation of Super Profit from Goodwill:
Super Profit = Goodwill/ Number of year's of purchase
= 24000/4
= 6000
Therefore
Calculation of Average Profit from Super Profit:
Average Profit =Super Profit + Normal Profit
= 14000+6000
= 20000
Explanation:
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