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Question
On 1st April, 2024 partners' capital accounts showed a balance of ₹ 7,00,000 while the general reserve amounted to ₹ 1,00,000. If the normal rate of return is 15% and the goodwill of the firm is valued at ₹ 1,60,000 at 4 years's purchase of super profit, find the average profits of the firm.
Options
₹ 1,45,000
₹ 1,30,000
₹ 1,60,000
₹ 80,000
MCQ
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Solution
₹ 1,60,000
Explanation:
Super Profit `(1,60,000)/4` = ₹ 40,000
Capital Employed = Partner's Capital + General Reserve
= ₹ 7,00,000 + ₹ 1,00,000
= ₹ 8,00,000
Normal Profit = `8,00,000 xx 15/100` = ₹ 1,20,000
Average Profit = Super Profit + Normal Profit
= ₹ 40,000 + ₹ 1,20,000
= ₹ 1,60,000
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