1
Question
On 1stApril,2018, an existing firm had assets of Rs.75,000 including cash of Rs.5,000. Its credit amounted to Rs.5,000 on that date. The firm had a Reserve of Rs. 10,000 while Partners capital Account showed a balance of Rs.60,000. If Normal rate of Return is 20 and goodwill of the firm is valued at Rs.24,000 at four years purchase of super profit, find average profit per year of the existing firm.
Open in App
Solution
Step 1: Calculation of Capital Employed:Capital Employed= Total assets- Creditors
= 75000-5000 = 70000Step 2: Calculation of Normal Profit:Normal Profit= Capital Employed* [Normal Rate Of Return/100]
= 70000* [20/100] = 14000Step 3: Calculation of Super Profit from Goodwill:Super Profit= Goodwill/ Number of year's of purchase
= 24000/4 = 6000Step 4: Calculation of Average Profit from Super Profit:Average Profit= Super Profit+ Normal Profit
= 14000+6000 = 20000
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
Suggest Corrections
0
Similar questions