Give four items of valuation of goodwill by super profit merhod
Answers
Answer:
First of all, we have to understand about Goodwill. It is an intangible asset which represents non-physical of a company. It is of immense value but it is not easy to be identified or valued. Though it cannot be easily calculated, it’s no doubt that intangible assets significantly contribute to a company’s success and value.
There are several methods which can be implemented for valuation of goodwill which is as follows:
1. Average Profit Method
Goodwill’s value in this method is considered by multiplying the Average Future profit by a certain number of year’s purchase.
Goodwill = Future maintainable profit after tax x No. of years purchase
Steps Involved under Average Profits Method:
• Calculate past profits before tax.
• Calculate the future profit before tax after making past adjustments.
• Calculate the average past adjusted profits.
• Multiply the future profits to be maintained by the number of years’ purchase.
2. Super Profit Method:
This super profit method is the additional estimated future maintainable profits over the normal profits.
Steps Involved in Calculating Goodwill under Super Profit Method:
• Calculate capital employed (always should the aggregate of Shareholders’ equity and long-term debt or fixed assets and net current assets).
• Calculate the Usual Profits by multiplying employed capital with normal return rate.
• Calculate average maintainable profit.
• Calculate Super Profit as follows:
Super Profit = Maintainable Average profits – Normal Profits.
• Calculate goodwill by multiplying super profit by the number of year’s purchase.
Answer:
Change in the profit sharing ratio amongst the existing partners
Admission of a new partner
The retirement of a partner
Death of a partner
Dissolution of a firm where business is sold as going concern.
Amalgamation of partnership firms
Explanation:
sorry I have mentioned six (6) for your understanding.
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