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Question
Find out the capital employed from the following information:
| Normal rate of return: | 12% |
| Profits: 2021-22 | ₹ 80,000 |
| 2022-23 | ₹ 1,30,000 |
| 2023-24 | ₹ 1,56,000 |
| Goodwill valued at 3 years purchase of Super Profits | ₹ 1,50,000 |
Numerical
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Solution
Normal rate of return = 12%
Average Profit `= (80,000 + 1,30,000 + 1,56,000)/3`
`= (3,66,000)/3`
= 1,22,000
Goodwill is valued at 3 years’ purchase of Super Profits = ₹ 1,50,000
Goodwill = Super Profit × Number of years’ purchase
Super Profit `= (1,50,000)/3`
= 50,000
Super Profit = Average Profit − Normal Profit
50,000 = 1,22,000 − Normal Profit
Normal Profit = 1,22,000 − 50,000
= 72,000
Normal Profit = `"Capital Employed" xx "NRR"/100`
72,000 = `"Capital Employed" × 12/100`
Capital Employed `= (72,000xx100)/12`
Capital Employed = 6,00,000
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