Question

difference between average profit and super profit

Answer 1

the average profit is multiplied by the number year's purchased to arrived at the value of goodwill.
super profit mean profit earned in excess of the normal profit
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Answer 2

Solution!!

Difference between average profit and super profit:-

→ As the name suggests, average profit is the average of normal profits incurred in past agreed years whereas super profit is the excess of average profit over normal profit.

→ During the calculation of average profit, the normal rate of return isn't relevant. During the calculation of super profit, the normal rate of return is relevant.

→ During the calculation of average profit, average capital employed isn't considered. Average capital employed is assessed while calculating super profit.

→ For the Average Profit Method, Super Profit Method and Capitalisation Method of Valuation of Goodwill, average profit is suitable. For the Super Profit Method and Capitalisation of Super Profit Method of Valuation of Goodwill, super profit is appropriate.