Under which method, goodwill is calculated by dividing super profits with normal rate of return

Capitalization method

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Weighted Profit method

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Avg. Profits method

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Super Profits method

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Solution

The correct option is A
Capitalization method

Capitalisation method = Super Profits / Normal Rate of Return

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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___

Under Super Profit Method, Goodwill =

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.

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

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Under which method, goodwill is calculated by dividing super profits with normal rate of return

The correct option is A Capitalization method Capitalisation method = Super Profits / Normal Rate of Return

The correct option is A
Capitalization method

Capitalisation method = Super Profits / Normal Rate of Return