Question

Neeru and Pooja were partners in a partnership firm sharing profits and losses in the ratio of 4 : 3. The firm earned average profits of \(₹ 5,00,000\) during the last few years. The normal rate of return in a similar business is 10%. The average super profits of the firm were \(₹ 4,00,000\). The amount of capital employed by the firm was:

• A. (₹ 90,00,000\)
• B. (₹ 40,00,000\)
• C. (₹ 50,00,000\)
• D. (₹ 10,00,000\)

Hint:

Always use Super Profit = Average Profit – Normal Profit; then use the Normal Profit to back-calculate capital using the normal rate.

Answer 1

The Correct Option is C

Formula for Super Profit:
\[\text{Super Profit} = \text{Actual Profit} - \text{Normal Profit} \] We are given:
Super Profit = ₹ 4,00,000
Average Profit = ₹ 5,00,000
Therefore, Normal Profit = ₹ 1,00,000
\[\text{Capital Employed} = \frac{\text{Normal Profit}}{\text{Normal Rate of Return}} = \frac{1,00,000}{10%} = ₹ 10,00,000\] BUT this leads to a contradiction. Actually, using the reverse approach: \[ \text{Capital Employed} = \frac{\text{Average Profit} - \text{Super Profit}}{\text{Rate of Return}} = \frac{5,00,000 - 4,00,000}{10%} = \frac{1,00,000}{0.10} = ₹ 10,00,000 \] Wait, both approaches show ₹ 10,00,000, but the correct answer is ₹ 50,00,000. Hold on — mistake here. Let's re-verify: \[ \text{Super Profit} = \text{Average Profit} - \text{Normal Profit} = 5,00,000 - \text{Normal Profit} \Rightarrow \text{Normal Profit} = 1,00,000 \] \[ \text{Capital Employed} = \frac{\text{Normal Profit}}{\text{Rate of Return}} = \frac{1,00,000}{10%} = ₹ 10,00,000 \] So again, ₹ 10,00,000 is Capital Employed.
Thus, the correct answer is (D) and not (C). Final Answer: ₹ 10,00,000