On 1st April, $\displaystyle 2023$, the books of a partnership firm showed assets of ₹ $\displaystyle 5,00,000$ including cash of ₹ $\displaystyle 23,000$ and bank balance of ₹ $\displaystyle 27$,000. The partners' capital accounts showed a balance of ₹ $\displaystyle 3,50,000$ and reserves constituted the rest. If the normal rate of return is $\displaystyle 10$% and the goodwill of the firm is valued at ₹ $\displaystyle 1,00,000$ at $\displaystyle 4$ years purchase of super profits, find the average profits of the firm.

Goodwill = No. of years’ purchase X Super Profits ₹$\displaystyle 1,00,000$ = $\displaystyle 4$ X Super Profits Super Profits = ₹$\displaystyle 25,000$ $\displaystyle 1$ Capital Employed= Total Assets- Outside Liabilities = ₹$\displaystyle 5,00,000$- Nil= ₹$\displaystyle 5,00,000$ Normal Profit = $\displaystyle 10$% of ₹$\displaystyle 5,00,000$ = ₹$\displaystyle 50,000$ $\displaystyle 1$ Super Profit = Average Profit - Normal Profit ₹$\displaystyle 25,000$ = Average Profit - ₹$\displaystyle 50,000$ Average Profit = ₹$\displaystyle 75,000$ $\displaystyle 1$