Excess of average profit over normal profit is
average profit
normal profit
super profit
Answers
Answer:
The excess of actual/average profit over normal or average profit is called a super profit method.
Explanation:
The basic assumption in the average profits (simple or weighted) method of calculating goodwill is that if a new
business is set up, it will not be able to earn any profits during the first few years of its operations. Hence, the person
who purchases an existing business has to pay in the form of goodwill a sum equal to the total profits he is likely to
receive for the first few years. But it is contended that the buyer's real benefit does not lie in total profits; it is limited to
such amounts of profits which are in excess of the normal return on capital employed in similar business. Therefore, it
is desirable to value, goodwill on the basis of the excess profits and not the actual profits. The excess of actual profits
over the normal profits is termed as super profits.
Normal Profit = Capital Employed X Normal Rate of Return/100
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Answer:
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Explanation: