Question

The net profits for the last 3 years were: 2018-19 2 70,000; 2019-20 rs.60,000 and 2020-21 rs. 80,000. There was an abnormal loss of Rs.15,000 included in the year 2019-20. Profit of the year 2020-21 includes loss on sale of furniture (Furniture whose book value was 10,000 sold for 7,000). Adjusted average profit will be: (A) 67,333 70,000 (B) 52,000 (C) (D) 76,000​

Answer 1

Given:

• The net profit for the last three years were 2019 - Rs 70,000; 2020 - Rs 60,000; 2021 - Rs 80,000
• There was an abnormal loss of Rs 15,000 in the year 2019 - 20, i.e., 2020.
• There was a loss on the sale of furniture of Rs 3,000 [Rs 10,000 - Rs 70,000] in the year 2020 - 21, i.e., 21.

To find: The adjusted average profit.

Answer:

Profit for the year 2019:

• Rs 70,000

Profit for the year 2020:

• Rs 75,000

Adjustments such as abnormal losses, wrongly charged expenditure, non-recurring expenses, etc, are to be added to the profit.

Hence, the actual profit is Rs 60,000 + Rs 15,000 = Rs 75,000.

Profit for the year 2021:

• Rs 83,000

It's the same adjustment as above, i.e., the loss will be added.

Hence the actual profit is Rs 80,000 + Rs 3,000 = Rs 83,000.

Average profit = Total profit ÷ Number of years

• Total profit = Rs 70,000 + Rs 75,000 + Rs 83,000 = Rs 2,28,000
• Number of years = 3

Average profit = Rs 2,28,000 ÷ 3 = Rs 76,000

Therefore, the adjusted average profit is (D) Rs 76,000.