Question 33 Chapter 3 of +2-A
Table of Contents
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.
The solution of Question 33 Chapter 3 of +2-A:
| Capital Employed | = | Total Assets – Creditors |
| = | 75,000 – 5,000 | |
| = | 70,000 |
| Normal 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 |
T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
- Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
- Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
- Chapter No. 3 – Goodwill: Nature and Valuation
- Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
- Chapter No. 5 – Admission of a Partner
- Chapter No. 6 – Retirement/Death of a Partner
- Chapter No. 7 – Dissolution of a Partnership Firm
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 8 – Company Accounts – Accounting for Share Capital
- Chapter No. 9 – Company Accounts – Issue of Debentures
- Chapter No. 10 – Redemption of Debentures
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 1 – Financial Statements of a Company
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
- Chapter No. 4 – Accounting Ratios
- Chapter No. 5 – Cash Flow Statement
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