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Goodwill

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Question

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

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Solution

Calculation of Goodwill by Capitalisation of Super Profit Method:
Formula:
Goodwill= [Super Profit/ Normal Rate of Return]* 100

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Give the formula for valuation of goodwill by the Capitalisation of Average 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. Average profit of GS &Co. Rs.

50, 000

per year. Average capital employed in the business is Rs.

3, 00, 000

. If the normal rate of return on capital employed is

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, calculate goodwill of the firm by:
(i) Super Profit Method at three years purchase and
(ii) Capitalisation of Super Profit Method.

Q. Average profit of GS & Co. is ₹ 50,000 per year. Average capital employed in the business is ₹ 3,00,000. If the normal rate of return on capital employed is 10%, calculate goodwill of the firm by:
(i) Super Profit Method at three years' purchase; and
(ii) Capitalisation of Super Profit Method.

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