Question

In a partnership firm total capital of partners is ₹ 12,00,000 and balance in Profit and Loss A/c (Debit) is ₹ 3,00,000. Average profits of past 3 years are ₹ 1,05,000. If the goodwill of the firm is ₹ 60,000 at 4 years’ purchase of super profits, find the normal rate of return.

Answer 1

Given:

Total Capital of Partners = ₹ 12,00,000

Profit and Loss A/c = ₹ 3,00,000

Average Profits = ₹ 1,05,000

Goodwill = ₹ 60,000

Goodwill is based on 4 years’ purchase of Super Profits.

Actual Capital Employed = 12,00,000 − 3,00,000

= 9,00,000

Goodwill = Super Profit × No. of Years’ Purchase

60,000 = Super Profit × 4

Super Profit = `(60,000)/4`

= 15,000

Super Profit = Average Profit − Normal Profit

15,000 = 1,05,000 − Normal Profit

Normal Profit = 1,05,000 − 15,000

Normal Profit = 90,000

`"NRR" (%) = "Normal Profit"/"Capital Employed" xx 100`

= `(90,000)/(9,00,000)xx100`

= 10%