Question

What is meant by Super Profit?

Answer 1

Super profits refers to the profits in excess of normal profits, that a business expects to earn. It is a way of calculating goodwill. Goodwill valuation based on super profits. Super profit is calculated by deducting following two from average profits.

1. Reasonable Managerial Remuneration.

2. An amount by way of reasonable return or yield on the invested amount that an investor would expect to get.

Example- Average adjusted profit = 20,000

Less:Managerial Remuneration = (5,000)

Reasonable Return:10% of 80,000 = (8,000)

Super profit = 7,000