Question

What will be the value of Normal Profit , if an existing firm had assets of Rs. 200,000, including cash of Rs. 4,000. Its creditors amounted to Rs. 10,000 on that date. The partners' capital account showed a balance of Rs. 1,60,000, while general reserve amounted to Rs. 30,000. The normal rate of return is 15%. Please answer correctly

Answer 1

Answer:

Step 1: Calculation of Capital Employed:

Capital Employed= Total assets- Creditors

= 75000-5000

= 70000

Step 2: Calculation of Normal Profit:

Normal Profit= Capital Employed* [Normal Rate Of Return/100]

= 70000* [20/100]

= 14000

Step 3: Calculation of Super Profit from Goodwill:

Super Profit= Goodwill/ Number of year's of purchase

= 24000/4

= 6000

Step 4: Calculation of Average Profit from Super Profit:

Average Profit= Super Profit+ Normal Profit

= 14000+6000

= 20000

Explanation:

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