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Average Profit Method

What is meant...

Question

What is meant by Capitalisation of Average Profit?

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Solution

Capitalisation of Average profit is a method of valuation of goodwill. Under this method, goodwill is calculated by deducting the net assets of the business unit from the total value of the firm.
Total value of the firm= [Average Profit/ Normal rate of return]* 100
Hence, Goodwill= Total Value of the firm- Net assets of the business.

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Similar questions

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

Q. What is meant by Average Profit?

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and liabilities

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