Question

Q.1 Tangible assets of the firm are Rs 1400000 and outside liabilities are Rs
400000. Profit of the firm is Rs 150000 and normal rate of return is 10%. The
amount of capital employed will be

Answer 1

i) Capitalisation of Super Profit Method:

Step 1: Calculation of Capital Employed:

Capital Employed= 5500000- 1400000

                              = 4100000

Step 2: Calculation of Normal Profit:

Normal Profit= 4100000 * [10/100]

                      = 410000

Step 3: Calculation of Average Profit:

Average Profit= 500000

Step 4: Calculation of Super Profit:

Super Profit= 500000- 410000

                    = 90000

Step 5: Calculation of Goodwill:

Goodwill= 90000 * [100/10]

               = 900000

(ii) Capitalisation of Average Profit Method:

Step 1: Calculation of Capitalised value of Profit:

Capitalised value of Profit= Profit * [100/ Normal Rate of return]

         

i) Capitalisation of Super Profit Method:

Step 1: Calculation of Capital Employed:

Capital Employed= 5500000- 1400000

                              = 4100000

Step 2: Calculation of Normal Profit:

Normal Profit= 4100000 * [10/100]

                      = 410000

Step 3: Calculation of Average Profit:

Average Profit= 500000

Step 4: Calculation of Super Profit:

Super Profit= 500000- 410000

                    = 90000

Step 5: Calculation of Goodwill:

Goodwill= 90000 * [100/10]

               = 900000

(ii) Capitalisation of Average Profit Method:

Step 1: Calculation of Capitalised value of Profit:

Capitalised value of Profit= Profit * [100/ Normal Rate of return]

                       

             

Answer 2

The amount of capital employed will be Rs.1000000.

Explanation:

Given:

Tangible assets of the firm are Rs.1400000.

Outside liabilities are Rs.400000.

Profit of the firm is Rs 150000 and normal rate of return is 10%.

To Find:

The amount of capital employed .

Formula Used:

The amount of capital employed= Total Tangible assets-Outside liabilities

                                                                         ------------- formula no.01.

Solution:

As given-Tangible assets of the firm are Rs.1400000.

As given-Outside liabilities are Rs.400000.

Applying formula no.01.

The amount of capital employed=Total Tangible assets-Outside liabilities

                                                      $=Rs.1400000- Rs.400000\\=Rs.1000000$

Thus,the amount of capital employed will be Rs.1000000.

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