Question

The average profits for last 5 years of a firm are Rs. 20,000 and goodwill has been worked out Rs.
24,000 calculated at 3 years purchase of super profits. Calculate the amount of capital employed
assuming the normal rate of interest is 8 %.
(Ans: Capital Employee = Normal Profit X 100/ Normal rate of return = 12000 X 100/8= Rs.150000)

Answer 1

goodwill = super profit * no of years of purchase 
super profit = 24000/3
                    =8000

super profit = average profit - normal profit
8000=20000 -normal profit 

normal profit = 12000

normal profit = capital employed * normal rate of return 
12000=capital employed *0.08

capital employed =12000/0.08
                            =150000


capital employed =150000

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