Question

Distinguish between average profit and super profit methods of valuation of goodwill

Answer 1

It is used for calculating goodwillunder the Average Profit Method,Super Profit Method and Caplitalisation Method. On the other hand Super Profit is calculated by deducting Normal Profits from the Average Profits as shown by theformula given below: Super Profit =Average Profit – Normal Profit
hope it helps you

Answer 2

Average Profit : it is calculated by dividing Profit of past years by Total No. of Years.

Eg. 5 year Profit

Average Profit =----------------------------

No. of years Eg. 5

Super Profit: it is calculated by subtracting Normal Profit from Average Profit

Super Profit = Average Profit - Normal Profit

Normal Profit = Capital employed * Normal Rate of Return