On 1st April, 2019, An Existing Firm Had Assets of ₹ 75,000 Including Cash of ₹ 5,000. Its Creditors Amounted to ₹ 5,000 On that Date
On 1st April, 2019, an existing firm had assets of ₹ 75,000 including cash of ₹ 5,000. Its creditors amounted to ₹ 5,000 on that date. The firm had a
On 1st April, 2019, an existing firm had assets of ₹ 75,000 including cash of ₹ 5,000. Its creditors amounted to ₹ 5,000 on that date. The firm had a Reserve of ₹ 10,000 while Partners' Capital Accounts showed a balance of ₹ 60,000. If Normal Rate of Return is 20% and goodwill of the firm is valued at ₹ 24,000 at four years' purchase of super profit, find average profit per year of the existing firm.
Firm's Goodwill = Rs. 24,000
No. of Year Purchase = 4
Normal Profits = Capital Employed x `"Normal Rate of Return"/100`
= Rs. 70,000 x `frac{20}{100}`
= Rs. 14,000
Average Profit = Rs. 40,000
Capital Employed = Total Asset - Creditors
= Rs. (75,000 - 5,000)
= Rs. 70,000
Goodwill = Super Profit x No. Year's of Purchase
= 24,000 = Super Profit x 4
= Super Profit = `frac{24,000}{4}`
= Super Profit = Rs. 6,000.
Average Profit = Normal Profit + Super Profit
= Average Profit = Rs. ( 14,000 + 6,000 )
= Rs. 20,000.
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