On 1st April, 2018, a Firm Had Assets of ₹ 1,00,000 Excluding Stock of ₹ 20,000 - bzziii.com

On 1st April, 2018, a firm had assets of ₹ 1,00,000 excluding stock of ₹ 20,000. The current liabilities were ₹ 10,000 and the balance constituted Partners' Capital Accounts. If the normal rate of return is 8%, the Goodwill of the firm is valued of ₹ 60,000 at four years' purchase of super profit, find the actual profits of the firm.

Total Assets of the Firm = ( Sundry Assets + Stock )

= Rs. ( 1,00,000 + 20,000)

= Rs. 1,20,000

Current Liabilities of the Firm = Rs. 10,000

Capital Employed = ( Total Assets – Current Liabilities)

= Rs. ( 1,20,000 – 10,000)

= Rs. 1,10,000

Normal Profits = Capital Employed `\times` `"Normal Rate of Return"/100`

= Rs. (1,10,000 × 8100)

= Rs. 8,800

Goodwill = Super Profits `\times` No. of years of Purchase

60,000 = Super Profit `\times` 4

Super Profits = Rs. (`60,000/4`)

= Rs. 15,000.

Super Profits = Average Actual Profits – Normal Profits

15,000 = Average Actual Profits – 8,800

Average Actual Profits = Rs. ( 15,000 + 8,800 )

= Rs. 23,800.

Chapter-3 Goodwill: Nature and Valuation-TS.Grewal

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