Question

Q.11. Find out the normal rate of return if the Super Profits are `25,000, Average Profits are `75,000 and Goodwill of the firm is `50,000.

Answer 1

The solution is attached
By assuming that the given Goodwill is calculated by capitalisation of super profit method.

Answer 2

Normal rate of return = 50%

Explanation:

Given:

Super Profit of firm = 25,000

Normal rate of return = ?

Goodwill = 50,000

Average Profit = 75,000

Assume:

Computation of goodwill under capitalization method:

Amount of Goodwill = Super Profit of firm x (100 / Normal rate of return)

50,000 = 25,000 x (100 / Normal rate of return)

2 = 100 / Normal rate of return

Normal rate of return = 100 / 2

Normal rate of return = 50%

Note : Average Profit will be ignored.

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