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Super Profit Method

Under this me...

Question

Under this method of calculating goodwill, we calculate the super profits and then assess the capital needed for earning such super profits on the basis of normal rate of return. This method is___

A

None of the above

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B

Capitalisation of Future Profits Method

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C

Capitalisation of Super Profits Method

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D

Capitalisation of Average Profits Method

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Solution

The correct option is D
Capitalisation of Average Profits Method

Goodwill = Super Profit / Normal Rate of Return

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Similar questions

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.

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

10

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

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

Q. A firm earns profit of ₹ 5,00,000. Normal Rate of Return in a similar type of business is 10%. The value of total assets (excluding goodwill) and total outsiders' liabilities as on the date of goodwill are ₹ 55,00,000 and ₹ 14,00,000 respectively. Calculate value of goodwill according to Capitalisation of Super Profit Method as well as Capitalisation of Average Profit Method.

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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