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Question
Value of goodwill of a firm at 3 times of super profits is ₹ 54,000. Average profits of the firm are ₹ 60,000 (after an abnormal loss of ₹ 8,000). Normal rate of return is 10%. Capital invested in the firm will be ______.
Options
₹ 3,40,000
₹ 5,00,000
₹ 4,20,000
₹ 8,60,000
MCQ
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Solution
Value of goodwill of a firm at 3 times of super profits is ₹ 54,000. Average profits of the firm are ₹ 60,000 (after an abnormal loss of ₹ 8,000). Normal rate of return is 10%. Capital invested in the firm will be ₹ 5,00,000.
Explanation:
Super Profit = `(54,000)/3 = 18,000`
Actual Average Profit = ₹ 60,000 + Abnormal Loss ₹ 8,000
= ₹ 68,000
Normal Profit = Actual Average Profit − Super Profit = ₹ 68,000 − ₹ 18,000 = ₹ 50,000
Capital Invested = `50,000 xx 100/10`
= ₹ 5,00,000
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