On 1st April, $\displaystyle 2023$, a partnership firm had assets of ₹ $\displaystyle 2,00,000$ including cash of ₹ $\displaystyle 6,000$ and bank balance of ₹ $\displaystyle 14,000$ . The partners' capital accounts showed a balance of ₹ $\displaystyle 1,90,000$ and reserves constituted the rest. If the normal rate of return is $\displaystyle 10$% and the goodwill of the firm is valued at ₹ $\displaystyle 60,000$ at $\displaystyle 4$ years purchase of super profits, find the average profits of the firm.

Goodwill = No. of years’ purchase X Super Profits ₹$\displaystyle 60,000$ = $\displaystyle 4$ X Super Profits Super Profits = ₹$\displaystyle 15,000$ ($\displaystyle 1$) Capital Employed= Total Assets- Outside Liabilities = ₹$\displaystyle 2,00,000$- Nil= ₹$\displaystyle 2,00,000$ Normal Profit =$\displaystyle 10$% of ₹$\displaystyle 2,00,000$ = ₹$\displaystyle 20,000$ ($\displaystyle 1$) Super Profit = Average Profit- Normal Profit ₹$\displaystyle 15,000$ = Average profit- ₹$\displaystyle 20,000$ Average Profit= ₹$\displaystyle 35,000$ ($\displaystyle 1$)