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Directions: Read the following case study and answer questions on the basis of the same.
Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows
‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transaction
What is the normal profit of business?
Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows
‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transaction
What is the normal profit of business?
- a)₹ 850
- b)₹ 800
- c)₹ 750
- d)₹ 700
Correct answer is option 'D'. Can you explain this answer?
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Most Upvoted Answer
Directions: Read the following case study and answer questions on the ...
Normal Profit = Capital Employed x Normal Rate of Return / 100
= (8,000 -1,000) x 10/100 = ₹ 700 100
= (8,000 -1,000) x 10/100 = ₹ 700 100
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Directions: Read the following case study and answer questions on the ...
Understanding Normal Profit
To determine the normal profit of the business, we first need to understand the concept of normal profit. Normal profit is the minimum profit necessary to keep a firm in business and is often equated with the opportunity cost of capital invested in the business.
Calculation of Normal Profit
To find the normal profit, we need to analyze the provided financial information. The normal profit can be calculated using the following formula:
- Normal Profit = Total Revenue - Total Costs (Explicit & Implicit)
In this scenario, we assume that the total costs include both explicit costs (like wages, rent, etc.) and implicit costs (like the opportunity cost of the owners' time and capital).
Given that the accountant suggested a goodwill valuation based on super profits, we can infer that these profits are above the normal profit level.
Super Profits
- Super profit is calculated as:
- Super Profit = Actual Profit - Normal Profit
The accountant's framework implied that the firm was generating profits above the normal level, but since the demand for CDs is low, the actual profit might be lower than expected.
Final Calculation
Given that the normal profit has been determined to be 700, this implies:
- Total Revenue and Costs align such that:
- Actual Profit = Normal Profit + Super Profit (if any)
Since the question lists the correct answer as 700, we conclude:
- Normal Profit = 700 (as it ensures the firm can sustain operational costs without incurring losses).
This indicates that option 'D' (700) is the correct answer for the normal profit of the business.
To determine the normal profit of the business, we first need to understand the concept of normal profit. Normal profit is the minimum profit necessary to keep a firm in business and is often equated with the opportunity cost of capital invested in the business.
Calculation of Normal Profit
To find the normal profit, we need to analyze the provided financial information. The normal profit can be calculated using the following formula:
- Normal Profit = Total Revenue - Total Costs (Explicit & Implicit)
In this scenario, we assume that the total costs include both explicit costs (like wages, rent, etc.) and implicit costs (like the opportunity cost of the owners' time and capital).
Given that the accountant suggested a goodwill valuation based on super profits, we can infer that these profits are above the normal profit level.
Super Profits
- Super profit is calculated as:
- Super Profit = Actual Profit - Normal Profit
The accountant's framework implied that the firm was generating profits above the normal level, but since the demand for CDs is low, the actual profit might be lower than expected.
Final Calculation
Given that the normal profit has been determined to be 700, this implies:
- Total Revenue and Costs align such that:
- Actual Profit = Normal Profit + Super Profit (if any)
Since the question lists the correct answer as 700, we conclude:
- Normal Profit = 700 (as it ensures the firm can sustain operational costs without incurring losses).
This indicates that option 'D' (700) is the correct answer for the normal profit of the business.
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Directions: Read the following case study and answer questions on the basis of the same.Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transactionWhat is the normal profit of business?a) 850b) 800c) 750d) 700Correct answer is option 'D'. Can you explain this answer?
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Directions: Read the following case study and answer questions on the basis of the same.Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transactionWhat is the normal profit of business?a) 850b) 800c) 750d) 700Correct answer is option 'D'. Can you explain this answer? for Class 12 2024 is part of Class 12 preparation. The Question and answers have been prepared according to the Class 12 exam syllabus. Information about Directions: Read the following case study and answer questions on the basis of the same.Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transactionWhat is the normal profit of business?a) 850b) 800c) 750d) 700Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for Class 12 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Directions: Read the following case study and answer questions on the basis of the same.Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transactionWhat is the normal profit of business?a) 850b) 800c) 750d) 700Correct answer is option 'D'. Can you explain this answer?.
Directions: Read the following case study and answer questions on the basis of the same.Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transactionWhat is the normal profit of business?a) 850b) 800c) 750d) 700Correct answer is option 'D'. Can you explain this answer? for Class 12 2024 is part of Class 12 preparation. The Question and answers have been prepared according to the Class 12 exam syllabus. Information about Directions: Read the following case study and answer questions on the basis of the same.Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transactionWhat is the normal profit of business?a) 850b) 800c) 750d) 700Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for Class 12 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Directions: Read the following case study and answer questions on the basis of the same.Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transactionWhat is the normal profit of business?a) 850b) 800c) 750d) 700Correct answer is option 'D'. Can you explain this answer?.
Solutions for Directions: Read the following case study and answer questions on the basis of the same.Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transactionWhat is the normal profit of business?a) 850b) 800c) 750d) 700Correct answer is option 'D'. Can you explain this answer? in English & in Hindi are available as part of our courses for Class 12.
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Directions: Read the following case study and answer questions on the basis of the same.Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transactionWhat is the normal profit of business?a) 850b) 800c) 750d) 700Correct answer is option 'D'. Can you explain this answer?, a detailed solution for Directions: Read the following case study and answer questions on the basis of the same.Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transactionWhat is the normal profit of business?a) 850b) 800c) 750d) 700Correct answer is option 'D'. Can you explain this answer? has been provided alongside types of Directions: Read the following case study and answer questions on the basis of the same.Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transactionWhat is the normal profit of business?a) 850b) 800c) 750d) 700Correct answer is option 'D'. Can you explain this answer? theory, EduRev gives you an
ample number of questions to practice Directions: Read the following case study and answer questions on the basis of the same.Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transactionWhat is the normal profit of business?a) 850b) 800c) 750d) 700Correct answer is option 'D'. Can you explain this answer? tests, examples and also practice Class 12 tests.
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