Question : Capital employed in a firm is calculated from the liabilities approach as follows
Option 1: Partner's capital – credit balance in current account + free reserve + credit balance of profit and loss account – Goodwill - Non trade investment – fictitious assets – all outside liabilities
Option 2: Partners capital + credit balance in current account (minus Debit balance of current account) + free reserve + credit balance of profit and loss (if any) – goodwill – non trade investment
Option 3: Partners capital – credit balance in current account + free reserve + credit balance of profit and loss account – Goodwill – non trade investment – fictitious assets – all outside liabilities
Option 4: All assests – goodwill – Non trade investment – fictious assets – Debit balance of profit and loss account – outsiders liabilities
Correct Answer: Partners capital + credit balance in current account (minus Debit balance of current account) + free reserve + credit balance of profit and loss (if any) – goodwill – non trade investment
Solution : Answer = Partners capital + credit balance in the current account (minus the Debit balance of current account) + free reserve + credit balance of profit and loss (if any) – goodwill – non-trade investment
The correct approach to calculating capital employed in a firm involves adding partners' capital, the credit balance in the current account (adjusted for debit balance), free reserve, and the credit balance of the profit and loss account (if any), while deducting goodwill and non-trade investments. This method provides a comprehensive view of the firm's financial position.
Hence, the correct option is 2.
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