Question

on the 1st april 2019 an existing firm had assets of 75,000 including cash of 5,000 the partners capital account showed a balance of ₹ 60,000 and reserve constituted the rest. if the normal rate of return is 10% and goodwill of the firm is valued at 24,000 at 4 years purchase of super profit find the average profit of the firm​

Answer 1

Solution!!

Observe the question carefully. The outside liabilities are not given so they're assumed to be nil. Therefore, capital employed equals total assets.

Goodwill = Super Profit × Number of years' purchase

60,000 = Super Profit × 4

Super Profit = Rs 15,000

Normal Profit = Capital Employed × Normal Rate of Return/100

Normal Profit = 75,000 × 10/100

Normal Profit = Rs 7,500

Super Profit = Average Profit - Normal Profit

15,000 = Average Profit - 7,500

Average Profit = 15,000 + 7,500

Average Profit = Rs 22,500