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Question 33 Chapter 3 of +2-A
33.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.
| Capital Employed | = | Total Assets - Creditors |
| = | 75,000 - 5,000 | |
| = | 70,000 |
| Super Profit | = | Capital Employed | X | Normal Rate of Return |
| 100 |
| = | 70,000 | X | 20 |
| 100 | |||
| = | 14,000 |
| Goodwill of Firm | = | 24,000 (Given) |
| Normal Profit | = | Firm Goodwill |
| Number of Years of Purchases |
| = | 24,000 |
| 4 | |
| = | 6,000 |
| Average Profit | = | Normal Profit + Super Profit |
| = | 14,000 + 6,000 | |
| = | 20,000 |
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Accounting & Commerce Educator
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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