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(Calculation of Average Profit). M/s H...

(Calculation of Average Profit).
M/s Hi-Tech India has assets of Rs. 5,00,000 whereas liabilities are: Partners' Capitals - Rs. 3,50,000, General Reserve - Rs. 60,000 and Sundry Creditors - Rs. 90,000. If normal rate fo return is `10%` and goodwill of the firm is valued at Rs. 90,000 at 2 years' purchase of super profit, find average profit of the firm.

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Goodwill = Super Profit `xx` Number of Years' Purchase
Rs. 90,000 = Super profit `xx` 2
` :. ` Super Profit = `(Rs. 90,000)/(2)` = Rs. 45,000
Capital Employed = Assets - Outside Liabilities (Creditors)
` " " ` = Rs. 5,00,000 - Rs. 90,000 = Rs. 4,10,000
` " " ` Or
` " " `= Partners' Capitals + General Reserve
` " " ` = Rs. 3,50,000 + Rs. 60,000 = Rs. 4,10,000
Normal Rate of Return = `10%`
` :. ` Normal Profit = Rs. 4,10,000`xx (10)/(100)` = Rs. 41,000
Super profit = Average Profit - Normal Profit
Average Profit = Super Profit + Normal Profit
` " " ` = Rs. 45,000 + Rs. 41,000 = Rs. 86,000.
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