Question

On 1st april 2012 ,an existing firm had assets of rs.75000 including cash of rs.5000. Its cr. Amounted to rs.10000 on that date . The firm had a reserve of rs.10000 while partners cap a/c showed a bal of rs.55000. If the normal rate of return is 20% and the goodwill of thw firm is valued at 24000 at 4 years of purchase of super profit . Find the average profit per year of the existing profit

Answer 1

Dear Student,

Goodwill = Super Profit x Number of Years' of Purchase
24,000 = Super Profit x 4
Super Profit = $\frac{24,000}{4}=6,000$
Normal Profit = Capital Employed x Normal Rate of Return = $75000\times \frac{20}{100}=15,000$
Super Profit = Average Profit - Normal Profit
6,000 = Average Profit - 15,000
Average Profit = 21,000

Regards