Question

What Are Super Profit Method

Answer 1

profit earned more than normal profit is known as super profit.

goodwill is calculated on profit which is more than normal profit and less than average profit is called super profit goodwill.

Explanation:

steps to calculate goodwill under super profit method.

step 1. average profit = total profit ÷ no of years

step 2. capital employed = assets - outsider liabilities

step 3. normal profit = capital employed × normal rate of return

step 4. super profit = average profit - normal profit

step 5. goodwill = super profit × no.of purchasing years