Question

the firm has assets of rs 12,00,000 and liability of rs 9,00,000 . the normal rate of return is 10% . goodwill is valued at 3 times the average super profit of the firm as rs 21,000 .
find the average profit of the firm....​

Answer 1

Explanation:

capital = assets-liabilities = 1200000-900000 = 3,00,000

normal return = 10% of 3,00,000 = 30,000

goodwill = super profit * 3

21000 = super profit * 3

super profit = 7000

super profit = avg profit - normal profit

7000 = avg profit - 30000

avg profit = 37000 ( Ans)

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Answer 2

Explanation:

Solution :

• Capital Employed = Assets - Liabilities

12,00,000 - 9,00,000

3,00,000

Capital Employed = 3,00,000

• Normal Profit = Capital Employed × (Normal Rate of Return/100)

3,00,000 × (10/100)

30,000

Normal Profit = 30,000

• Goodwill = Super Profit × 3

21,000 = Super Profit × 3

21,000/3 = Super Profit

7,000 = Super Profit

• Super Profit = Average Profit - Normal Profit

7,000 = Average Profit - 30,000

7,000 + 30,000 = Average Profit

37,000 = Average Profit

Therefore, Average Profit of the firm is Rs. 37,000.