Question

Q. 3) Super profit is a .
a) Abnormal profit
b) Normal profit
c) contingent profit
d) excess of actual profit​

Answer 1

Answer:

D ) Excess Of Actual Profit

Super Profit is the excess of actual profits over the normal profits.

Super Profits Method :

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. It is desirable to value goodwill on the basis over the normal profits is termed as Super Profits.The excess of actual profits over the normal profits is termed as Super Profits.

$\rm\: Normal \: Profit \: = \frac{Capital \: employed \: \times \: Normal \: Rate \: of \: Return }{100}$

The Steps involved under this Method are ;

1 • Calculate Average Profit

2 • Calculate the Normal Profit on the capital employed on the basis of Normal Rate of Return.

3 • Calculate Super Profits.

$\rm\: Super \: Profits \: = Normal \: Profit \: - Average \: Profits$

4 • Calculate Goodwill.

$\rm \: Goodwill \: = Super \: Profits \: \times \: No.of \: years \: Purchase \:$