On 1st April, 2018, 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.

On 1st April, 2018, an existing firm had assets of ₹ 75,000 includin

1.	On 1st April, 2018, 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.
Answer» n:Average PROFIT = Normal Profit + Super Profit Capital EMPLOYED = Total Assets - Creditors = 75, 000 - 5, 000 =70, 000 Normal Profit = Capital Employed x = 70, 000 x = 14,000 GOODWILL of the firm =24, 000 Number of years purchase = 4 Super Profit = = 6,000 Average Profit = Normal Profit+ Super Profit Average Profit = 14,000 + 6,000 = 20,000

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