The net assets of a firm as on March 31 ,2017 were 400000 .if the normal rate of return is 20/ and the goodwill of the firm is valued at 125000 at 5 year's purchase of super profits ,find the average profits of them

The net assets of a firm as on March 31 ,2017 were 400000 .if the norm

1.	The net assets of a firm as on March 31 ,2017 were 400000 .if the normal rate of return is 20/ and the goodwill of the firm is valued at 125000 at 5 year's purchase of super profits ,find the average profits of them
Answer» ata:The net assets of a firm are RS 4,00,000.The NRR is 20%.The goodwill is valued at Rs 1,25,000, worth 5 years' purchase of super profits.To find: The average profits of the firm.Answer:Goodwill = Super profit × Number of years' purchaseWe have,goodwill = Rs 1,25,000number of years' purchase = 5Substituting them in the FORMULA,Rs 1,25,000 = Super profit × 5Super profit = Rs 1,25,000 ÷ 5Super profit = Rs 25,000Super profit = Average profit - Normal profit Normal profit = NRR × CAPITAL employedNet assets of a firm ⇒ Capital employedWe have,NRR = 20%capital employed = Rs 4,00,000Substituting them in the formula,Normal profit = 20/100 × 4,00,000Normal profit = Rs 80,000Coming back to the formula to find the super profit, we have,super profit = Rs 25,000normal profit = Rs 80,000Substituting them in the formula,Rs 25,000 = Average profit - Rs 80,000Average profit = Rs 25,000 + Rs 80,000Average profit = Rs 1,05,000Therefore, the average profit of the firm is Rs 1,05,000.

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The net assets of a firm as on March 31 ,2017 were 400000 .if the normal rate of return is 20/ and the goodwill of the firm is valued at 125000 at 5 year's purchase of super profits ,find the average profits of them

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