Question

Following particulars are available in respect of the partnership firm of Shailesh and Anjali:

1. Capitals:
   Shailesh - ₹ 11,50,000
   Anjali - ₹ 8,20,000
2. General Reserve ₹70,000; Advertisement Suspense A/c ₹ 40,000
3. Average Profits earned by the firm ₹ 4,40,000
4. Goodwill of the firm at 3 years’ purchase of super profit ₹ 3,60,000

Find out Normal Rate of Return.

Answer 1

Capital Employed = Partners’ Capitals + General Reserve − Advertisement Suspense A/c

= 11,50,000 + 8,20,000 + 70,000 − 40,000

= ₹ 20,00,000

Goodwill = Super Profit × 3 Years’ Purchase

₹ 3,60,000 = Super Profit × 3

Super Profit = `(3,60,000)/3`

= ₹ 1,20,000

Normal Profit = Average Profit - Super Profit

= 4,40,000 – 1,20,000

= ₹ 3,20,000

Normal Rate of Return = `"Normal Profit"/"Capital Employed" xx 100`

= `(3,20,000)/(20,00,000) xx 100`

= 16%