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Average profit of a firm during the last few years is rs200000 and the normal rate of return in a similar business is 10% if the goodwill of the firm is 250000 at 4 years purchase of super profit find the capital employed by the firm?
Most Upvoted Answer
Average profit of a firm during the last few years is rs200000 and the...
Solution:
Given data:
Average profit of the firm during the last few years = Rs. 200,000
Normal rate of return in a similar business = 10%
Goodwill of the firm = Rs. 250,000
Number of years of purchase of super profit = 4 years
Calculation:
Step 1: Calculation of Super Profit
Super profit = Average profit - Normal rate of return
Super profit = Rs. 200,000 - (10% of Rs. 200,000)
Super profit = Rs. 200,000 - Rs. 20,000
Super profit = Rs. 180,000
Step 2: Calculation of Capital Employed
Goodwill = Super profit x Number of years of purchase
Rs. 250,000 = Rs. 180,000 x 4
Rs. 250,000 = Rs. 720,000
Capital employed = Goodwill - Super profit
Capital employed = Rs. 720,000 - Rs. 180,000
Capital employed = Rs. 540,000
Therefore, the capital employed by the firm is Rs. 540,000.
Explanation:
To calculate the capital employed by the firm, we need to first calculate the super profit and then use it to calculate the goodwill. Goodwill is the value of the business beyond its tangible assets, and it is calculated by multiplying the super profit by the number of years of purchase. The number of years of purchase is usually determined based on the nature of the business and the prevailing market conditions.
In this case, the number of years of purchase is 4 years. This means that the goodwill is equal to 4 times the super profit. We can then use the goodwill and the super profit to calculate the capital employed by the firm. The capital employed is the total amount of capital invested in the business, and it includes both the tangible and intangible assets.
Therefore, the capital employed by the firm is Rs. 540,000.
Given data:
Average profit of the firm during the last few years = Rs. 200,000
Normal rate of return in a similar business = 10%
Goodwill of the firm = Rs. 250,000
Number of years of purchase of super profit = 4 years
Calculation:
Step 1: Calculation of Super Profit
Super profit = Average profit - Normal rate of return
Super profit = Rs. 200,000 - (10% of Rs. 200,000)
Super profit = Rs. 200,000 - Rs. 20,000
Super profit = Rs. 180,000
Step 2: Calculation of Capital Employed
Goodwill = Super profit x Number of years of purchase
Rs. 250,000 = Rs. 180,000 x 4
Rs. 250,000 = Rs. 720,000
Capital employed = Goodwill - Super profit
Capital employed = Rs. 720,000 - Rs. 180,000
Capital employed = Rs. 540,000
Therefore, the capital employed by the firm is Rs. 540,000.
Explanation:
To calculate the capital employed by the firm, we need to first calculate the super profit and then use it to calculate the goodwill. Goodwill is the value of the business beyond its tangible assets, and it is calculated by multiplying the super profit by the number of years of purchase. The number of years of purchase is usually determined based on the nature of the business and the prevailing market conditions.
In this case, the number of years of purchase is 4 years. This means that the goodwill is equal to 4 times the super profit. We can then use the goodwill and the super profit to calculate the capital employed by the firm. The capital employed is the total amount of capital invested in the business, and it includes both the tangible and intangible assets.
Therefore, the capital employed by the firm is Rs. 540,000.
Community Answer
Average profit of a firm during the last few years is rs200000 and the...
Average Profit = 2,00,000
Normal Rate of Return = 10%
Goodwill = 2,50,000
Number of years' of purchase = 4 Years
Super Profit = 2,50,000/4 ( i.e. Goodwill purchase value of one year )
= 62,500
Normal Profit = 10/100× Capital Employeed ( C E)
= CE /10
Now , Super Profit = Average Profit - Normal Profit
62,500 = 200000 - CE / 10
Therefore , Capital Employeed ( CE) = 1,37,500
Normal Rate of Return = 10%
Goodwill = 2,50,000
Number of years' of purchase = 4 Years
Super Profit = 2,50,000/4 ( i.e. Goodwill purchase value of one year )
= 62,500
Normal Profit = 10/100× Capital Employeed ( C E)
= CE /10
Now , Super Profit = Average Profit - Normal Profit
62,500 = 200000 - CE / 10
Therefore , Capital Employeed ( CE) = 1,37,500
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Average profit of a firm during the last few years is rs200000 and the normal rate of return in a similar business is 10% if the goodwill of the firm is 250000 at 4 years purchase of super profit find the capital employed by the firm?
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Average profit of a firm during the last few years is rs200000 and the normal rate of return in a similar business is 10% if the goodwill of the firm is 250000 at 4 years purchase of super profit find the capital employed by the firm? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Average profit of a firm during the last few years is rs200000 and the normal rate of return in a similar business is 10% if the goodwill of the firm is 250000 at 4 years purchase of super profit find the capital employed by the firm? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Average profit of a firm during the last few years is rs200000 and the normal rate of return in a similar business is 10% if the goodwill of the firm is 250000 at 4 years purchase of super profit find the capital employed by the firm?.
Average profit of a firm during the last few years is rs200000 and the normal rate of return in a similar business is 10% if the goodwill of the firm is 250000 at 4 years purchase of super profit find the capital employed by the firm? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Average profit of a firm during the last few years is rs200000 and the normal rate of return in a similar business is 10% if the goodwill of the firm is 250000 at 4 years purchase of super profit find the capital employed by the firm? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Average profit of a firm during the last few years is rs200000 and the normal rate of return in a similar business is 10% if the goodwill of the firm is 250000 at 4 years purchase of super profit find the capital employed by the firm?.
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