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Super Profit Method

Capitalised V...

Question

Capitalised Value of Super Profits =

A

None of the above

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B

Super Profits X (100 / Normal Rate of Return)

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C

Average Profits X (100 / Normal Rate of Return)

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D

Super Profits X (100 / Average Rate of Return)

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Solution

The correct option is B
Super Profits X (100 / Normal Rate of Return)

Capitalised Value of Super Profits = Super Profits * (100 / Normal Rate of Return)

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Capitalised Value of Super Profits =

Q. Average profit of the firm is ₹ 2,00,000. Total assets of the firm are ₹ 15,00,000 whereas Partners' Capital is ₹ 12,00,000. If normal rate of return in a similar business is 10% of the capital employed, what is the value of goodwill by Capitalisation of Super Profit?

Q. Give the formula for calculation Goodwill by 'Capitalisation of Super Profit Method'.

Which of the following method calculates the value of goodwill by capitalising the super profit on the basis of normal rate of return?

Q. A business has earned average profit of ₹ 4,00,000 during the last few years and the normal rate of return in similar business is 10%. Find value of goodwill by:
(i) Capitalisation of Super Profit Method, and
(ii) Super Profit Method if the goodwill is valued at 3 years' purchase of super profits.
Assets of the business were ₹ 40,00,000 and its external liabilities ₹ 7,20,000.

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