Distinguish between average profits and super profits.

Average Profit Methods

The following information relates to a partnership firm: (a) Sundry Assets of the firm Rs. 6,80,000. Outside Liabilities Rs. 60,000. (b) Profits and losses for the past years : Profit 2013 Rs. 50,000, Loss 2014 Rs. 10,000, Profit 2015 Rs. 1,64,000 and Profit 2016 Rs. 1,80,000. (c) The normal rate of return in a similar type of business is 12%. Calculate the value of goodwill on the basis of : (i) Three year's purchase of average profits. (ii) Three year's purchase of super profits. (iii) Capitalisation of average profits, and (iv) Capitalisation of super profits.

Calculate Goodwill on the basis of two years' purchase of average profits of last six years. Profits are as follows : {:("Year","Rs.","Profit/Loss"),("1st A","60,000","Profit"),("2nd","40,000","Loss"),("3rd","30,000","Loss"),("4th","1,00,000","Profit"),("5th","1,70,000","Profit"),("6th","2,20,000","Profit"):}

1. The goodwill of a firm is to be worked out at three years’ purchase of the average profits of the last five years which are as follows: {:(Year,Profits(Loss)(Rs)),(2012,10000),(2013,15000),(2014,4000),(2015,(5000)),(2016,6000):} 2. The capital employed of the firm is Rs. 1,00,000 and normal rate of return is 8%, the average profits for last 5 years are Rs. 12,000 and goodwill is to be worked out at 3 years’ purchase of super profits, 3. Rama Brothers earn an average profit of Rs. 30,000 with a capital of Rs. 2,00,000. The normal rate of return in the business is 10%. Using capitalisation of super profits method work out the value the goodwill of the firm.