The following are the particulars in respect of two partnership firms.

1.	The following are the particulars in respect of two partnership firms.ParitcularsFirm XFirm YCash10,0002,000Debtors15,0008,000Stock20,00010,000Furniture20,00020,000Creditors5,0005,000Profit earned5,5004,000Normal rate of return10%10%Manu wishes to join in any one of the above firm which can make better profit. He seeks your advice as to which firm is more worth while and reputed.
Answer» Capital Exployed = Assets – Liabilities = (10,000 + 15,000 + 20,000 + 20,000) – 5,000 = 60,000 Normal profit = Capital employed × Normal rate of return 60,000 × 10/100 = 6,000 Actual profit = 5,500 Super profit = Actual profit – Normal Prot = 5,500 – 6,000 = -500 Firm Y Capital Employed= (2,000 + 8,000 + 10,000 + 20,000) – 5,000 = 35,000 Normal profit = 35.000 × 10/100 = 3,500 Actual profit = 4,000 Super profit = 4,000 – 3,500 = 500 Conclusion: Firm ‘Y’ earns Rs. 4,000 which is above normal profit. Firm Y’s performance is better. So select Firm Y’.

The following are the particulars in respect of two partnership firms.ParitcularsFirm XFirm YCash10,0002,000Debtors15,0008,000Stock20,00010,000Furniture20,00020,000Creditors5,0005,000Profit earned5,5004,000Normal rate of return10%10%Manu wishes to join in any one of the above firm which can make better profit. He seeks your advice as to which firm is more worth while and reputed.

Answer»

Capital Exployed = Assets – Liabilities = (10,000 + 15,000 + 20,000 + 20,000) – 5,000 = 60,000

Normal profit = Capital employed × Normal rate of return 60,000 × 10/100 = 6,000

Actual profit = 5,500

Super profit = Actual profit – Normal Prot = 5,500 – 6,000 = -500 Firm Y

Capital Employed= (2,000 + 8,000 + 10,000 + 20,000) – 5,000 = 35,000

Normal profit = 35.000 × 10/100 = 3,500

Actual profit = 4,000

Super profit = 4,000 – 3,500 = 500

Conclusion: Firm ‘Y’ earns Rs. 4,000 which is above normal profit.

Firm Y’s performance is better. So select Firm Y’.