Tangible Assets of the firm are Rs. 14,00,000 and Outside liabilities are Rs. 4,00,000, Profit of the firm is Rs. 1,50,000 and normal rate of return is 10% Calculate capital employed *
a. Rs. 10,00,000
b. Rs. 1,00,000
c. Rs. 50,000
d. Rs. 20,000
Answers
Answer:
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]
= 500000 * [100/10]
= 5000000
Step 2: Calculation of Capital Employed:
Capital Employed= 5500000- 1400000
= 4100000
Step 3: Calculation of Goodwill:
Goodwill= Capitalised value of Profit- Capital Employed
= 5000000- 4100000
= 900000
Answer:
10,00,000 is the Correct Answer
Explanation:
Capital Employed= Total Assets- Current Liabilities
= 1400000- 400000
= 10,00,000
Capital employed, it is also known as funds employed. It is the total amount of capital used for the acquisition of profits by a firm. Capital employed can also be referred to the value of all the assets which the company is used to generate earnings.
Capital Employed = Total Assets – Current Liabilities
Where:
Total Assets are the total book value of all assets.
Current Liabilities are liabilities which are due within a year.
By employing many capital, companies do invest in the long-term future of the company. Capital employed is also helpful since it's used with other financial metrics to determine the return on a company's assets as well as how effective management is at employing capital.
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