CBSE 2024, Set 2

Question

On 1st April, 2023, the books of a partnership firm showed assets of ₹5,00,000 including cash of ₹23,000 and bank balance of ₹27,000. The partners' capital accounts showed a balance of ₹3,50,000 and reserves constituted the rest. If the normal rate of return is 10% and the goodwill of the firm is valued at ₹1,00,000 at 4 years purchase of super profits, find the average profits of the firm.

Edvaya · Accepted Answer

The correct answer is Subjective. **1. Calculation of Super Profit:** Goodwill = Super Profit $	imes$ Number of years' purchase $ 1,00,000 = 	ext{Super Profit} 	imes 4 $ Super Profit = $ 1,00,000 / 4 = 	ext{₹}25,000 $. **2. Calculation of Capital Employed:** Capital Employed = Total Assets - Outside Liabilities Total Assets = ₹5,00,000. Since Capitals + Reserves constitute the rest, Outside Liabilities = Nil. Capital Employed = ₹5,00,000. **3. Calculation of Normal Profit:** Normal Profit = Capital Employed $	imes$ Normal Rate of Return / 100 $ = 5,00,000 	imes 10\% = 	ext{₹}50,000 $. **4. Calculation of Average Profit:** Super Profit = Average Profit - Normal Profit $ 25,000 = 	ext{Average Profit} - 50,000 $ Average Profit = $ 25,000 + 50,000 = 	ext{₹}75,000 $.

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Accountancy > Accounting For Partnership Firms > Valuation Of Goodwill

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