Question

What are 'Super Profits'?

Answer 1

Super Profit is the excess of actual profit over the normal profit of an enterprise. A business unit may possess some extra advantages which enable it make extra profits over and above the amount that would be earned in the normal functioning of the business. These extra profits, i.e super profits, can be valued and goodwill is the value of the few year's purchase of super profit.

Super Profit= Average Profit- Normal Profit

Hence, Goodwill= Super profit * Number of year's of purchase