Question

Q.19 On 1st April, 2021 partner's capital accounts showed a balance of Rs. 7,00,000 while the general reserve
amounted to Rs. 1,00.000. If the normal rate of return is 15% and the goodwill of the firm is valued at Rs.
1,60,000 at 4 year's purchase of super protit, find the average protits of the firm.
(A) Rs. 1,45,000
(B) Rs. 1,30,000
(C) Rs. 1,60,000
(D) Rs. 80,000

Answer 1

On 1st April, 2021 partner's capital accounts showed a balance of Rs. 7,00,000 while the general reserve

amounted to Rs. 1,00.000. If the normal rate of return is 15% and the goodwill of the firm is valued at Rs.

1,60,000 at 4 year's purchase of super protit, find the average protits of the firm.

(A) Rs. 1,45,000

(B) Rs. 1,30,000

(C) Rs. 1,60,000

(D) Rs. 80,000

answer

Goodwill = Super Profit × 3 year's purchase 

36,000 = Super Profits × 3 

Super Profits = 36,0003= Rs. 12,000 

Capital Employed = Assets - Creditors 

= Rs. 2,00,000 - Rs. 10,000 = Rs, 1,90,000. 

OR 

=Partner's Capital + General Reserve 

= Rs. 1,60,000 + Rs. 30,000 = Rs. 1,90,000 

Normal Profits = Capital Employed×Normal Rate of Return100 

= Rs. 1,90,000 ×15100= Rs. 28,500 

Super Profits = Average Profits - Normal Profits 

Hence, Average Profits = Super Profits + Normal Profits 

= Rs. 12,000 + Rs. 28,500 = Rs. 40,500.

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Answer 2

Given:

The balance of Rs7,00,000 while the general reserve amounted to Rs.1,00.000. If the normal rate of return is 15% and the goodwill of the firm is valued at Rs. 1,60,000 at 4 year's profit.

To find:

The average profits of the firm.

Step-by-step explanation:

Capital employed= Total assets-Creditors

$=700000-100000$

$=600000$

Normal profit= Capital employed*normal rate of return/100.

$=600000*\frac{15}{100}$

$=90000$

Super profit= goodwill/number of year's of purchase.

$=\frac{160000}{4}$

$=40000$

Average profit=super profit+ normal profit

$=90000+40000$

$=130000$.

Answer:  

The average profits of the firm in Rs.1,30,000.