How goodwill is valued under capitalization of super profit method?
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Goodwill can also be ascertained under the capatlisation of super profit method. Under this. method, there is no need to work on the capitalisation of average profit. It involves following steps.
1//Calculate capital employed of the firm, assets minus liabilities
2//Calculate normal profits on the capital employed
3// Average profits for past years as specified.
4/Calculate super profit by deduction of normal profit from average profit.
5//Multiply the super profit by required rate of return multiplier.
Goodwill = super profit X 100/ Normal rate.
1//Calculate capital employed of the firm, assets minus liabilities
2//Calculate normal profits on the capital employed
3// Average profits for past years as specified.
4/Calculate super profit by deduction of normal profit from average profit.
5//Multiply the super profit by required rate of return multiplier.
Goodwill = super profit X 100/ Normal rate.
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