Question

P, Q and R are partners running a departmental store and sharing profits equally. R started a new business of his own and since R was unable to devote any time to the existing business, they decided that R will get 1/5th in future profits. They also decided to make adjustment for goodwill on the basis of 3 years purchase of super profits of last 5 years. Capital investment of the firm is ₹ 15,00,000 and a fair return on capital is 12%. Profits of the last 5 years were as follows: Year                                                                   Profit (₹) Profit for the year ended 31st March 2020:      1,60,000 Profit for the year ended 31st March 2021:      (3,00,000) Profit for the year ended 31st March 2022:      4,60,000 (including an abnormal gain of ₹ 60,000) Profit for the year ended 31st March 2023:      4,00,000 (after charging an abnormal loss of ₹ 40,000) Profit for the year ended 31st March 2024:      3,00,000

On the basis of above information, answer the following:

Average maintainable profit will be ______.

Options

• ₹ 10,00,000

• ₹ 3,20,000

• ₹ 2,00,000

• ₹ 2,08,000

Answer 1

Average maintainable profit will be ₹ 2,00,000.

Explanation:

	Profit (₹)
31st March, 2020:	1,60,000
2021:	(3,00,000)
2022: ₹ 4,60,000 − ₹ 60,000	4,00,000
2023: ₹ 4,00,000 + ₹ 40,000	4,40,000
2024:	3,00,000
	10,00,000

Average maintainable profit = `(10,00,000)/5`

= ₹ 2,00,000