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Average profit of the firm during the last few years are ₹80,000 & the normal rate of return in the similar business is 10%. If the Goodwill of the firm is ₹1,00,000 at 4 years purchase of super profit, find capital employed by the firm.?
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Average profit of the firm during the last few years are ₹80,000 & the...
Understanding Goodwill and Super Profit
To determine the capital employed by the firm, we need to analyze the given data. The goodwill is based on the super profit, which is the excess profit earned over the normal profit.
Key Data Points:
- Average Profit (AP) = ₹80,000
- Normal Rate of Return (NRR) = 10%
- Goodwill = ₹1,00,000
- Years of Purchase = 4
Calculating Normal Profit:
- Capital Employed (CE) Calculation:
- To find the capital employed, we first calculate the normal profit using the formula:
- Normal Profit = (Capital Employed x Normal Rate of Return) / 100
- Super Profit Calculation:
- Super Profit = Average Profit - Normal Profit
- Goodwill Calculation:
- Goodwill = Super Profit x Years of Purchase
- Therefore, Super Profit = Goodwill / Years of Purchase = ₹1,00,000 / 4 = ₹25,000
Finding Capital Employed:
1. Determine Normal Profit:
- Let CE be the Capital Employed.
- NRR = 10%, thus:
- Normal Profit = (CE x 10) / 100 = CE / 10
2. Set Up the Equation:
- Super Profit = Average Profit - Normal Profit
- ₹25,000 = ₹80,000 - (CE / 10)
3. Rearranging the Equation:
- CE / 10 = ₹80,000 - ₹25,000
- CE / 10 = ₹55,000
- CE = ₹55,000 x 10 = ₹5,50,000
Conclusion:
The capital employed by the firm is ₹5,50,000. This calculation illustrates how goodwill is derived from super profits, which reflects the firm's ability to generate profits above the normal expectations in its industry.
To determine the capital employed by the firm, we need to analyze the given data. The goodwill is based on the super profit, which is the excess profit earned over the normal profit.
Key Data Points:
- Average Profit (AP) = ₹80,000
- Normal Rate of Return (NRR) = 10%
- Goodwill = ₹1,00,000
- Years of Purchase = 4
Calculating Normal Profit:
- Capital Employed (CE) Calculation:
- To find the capital employed, we first calculate the normal profit using the formula:
- Normal Profit = (Capital Employed x Normal Rate of Return) / 100
- Super Profit Calculation:
- Super Profit = Average Profit - Normal Profit
- Goodwill Calculation:
- Goodwill = Super Profit x Years of Purchase
- Therefore, Super Profit = Goodwill / Years of Purchase = ₹1,00,000 / 4 = ₹25,000
Finding Capital Employed:
1. Determine Normal Profit:
- Let CE be the Capital Employed.
- NRR = 10%, thus:
- Normal Profit = (CE x 10) / 100 = CE / 10
2. Set Up the Equation:
- Super Profit = Average Profit - Normal Profit
- ₹25,000 = ₹80,000 - (CE / 10)
3. Rearranging the Equation:
- CE / 10 = ₹80,000 - ₹25,000
- CE / 10 = ₹55,000
- CE = ₹55,000 x 10 = ₹5,50,000
Conclusion:
The capital employed by the firm is ₹5,50,000. This calculation illustrates how goodwill is derived from super profits, which reflects the firm's ability to generate profits above the normal expectations in its industry.
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Average profit of the firm during the last few years are ₹80,000 & the normal rate of return in the similar business is 10%. If the Goodwill of the firm is ₹1,00,000 at 4 years purchase of super profit, find capital employed by the firm.?
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Average profit of the firm during the last few years are ₹80,000 & the normal rate of return in the similar business is 10%. If the Goodwill of the firm is ₹1,00,000 at 4 years purchase of super profit, find capital employed by the firm.? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Average profit of the firm during the last few years are ₹80,000 & the normal rate of return in the similar business is 10%. If the Goodwill of the firm is ₹1,00,000 at 4 years purchase of super profit, find capital employed by the firm.? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Average profit of the firm during the last few years are ₹80,000 & the normal rate of return in the similar business is 10%. If the Goodwill of the firm is ₹1,00,000 at 4 years purchase of super profit, find capital employed by the firm.?.
Average profit of the firm during the last few years are ₹80,000 & the normal rate of return in the similar business is 10%. If the Goodwill of the firm is ₹1,00,000 at 4 years purchase of super profit, find capital employed by the firm.? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Average profit of the firm during the last few years are ₹80,000 & the normal rate of return in the similar business is 10%. If the Goodwill of the firm is ₹1,00,000 at 4 years purchase of super profit, find capital employed by the firm.? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Average profit of the firm during the last few years are ₹80,000 & the normal rate of return in the similar business is 10%. If the Goodwill of the firm is ₹1,00,000 at 4 years purchase of super profit, find capital employed by the firm.?.
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