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Question 18 Chapter 3 - Unimax Class 12 Part 1
18. The following particulars are available in respect of the business of a firm.
| Capital Invested | Rs. 50000 |
| 2018 | Rs. 50000 (Profit) |
| 2019 | Rs. 12200 (Profit) |
| 2020 | Rs. 15000 (Profit) |
| 2021 | Rs. 21000 (Profit) |
(a) Market rate of return on investment 8%.
(b) Rate of risk return on Capital invested in the business 2%.
(c) Remuneration from alternative employment of the proprietor (if not engaged in business) Rs. 3600 per annum.
Compute
Average Profits = Rs. 12200 + Rs. 15000 – Rs. 2000 + Rs. 21000/4
=Rs. 46200/4 = Rs. 11550
Net Average Profits = Average Profits – Remuneration of proprietor
= Rs. 11550 – Rs. 3600
= Rs. 7950
Normal Profits = Capital invested X Normal rate of return
Normal rate of return = Market rate + rate of risk
= 8 + 2 = 10%
= Rs. 50000 X 10/100 = Rs. 5000
Super Profits = Net Average Profits – Normal Profits
= Rs. 7950 – Rs. 5000 = Rs. 2950
Goodwill = Rs. 2950 X 3 = Rs. 8850
| Loss for 2021 for 6 months upto 30-6-2021(Rs. 2800 X 6/12) | (1400) |
| Total profits for 3 years upto date of valuation i.e. 30-6-2021 | 24100 |
Average Profits = Total Profits/No. of years = Rs. 24100/3
= Rs. 8033.33
Goodwill = Average Profits X Number of years of purchase
= Rs. 8033.33 X 3
= Rs. 24100
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Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
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