Question 18 Chapter 3 - Unimax Class 12 Part 1 - 2021

Question 18 Chapter 3 – Unimax Class 12 Part 1

Table of Contents

The solution of Question 18 Chapter 3 – Unimax Class 12 Part 1:

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

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

The solution of Question 18 Chapter 3 – Unimax Class 12 Part 1:

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