Question

What is capitalisation method of valuation of goodwill?

Answer 1

Capitalized Average profits = Average Profits × 100/Normal Rate of Return. Actual Capital Employed = Total Assets (excluding goodwill) – Outside Liabilities. (ii). Capitalization of Super Profits: Under this method, it is calculated by capitalizing the super profits directly.

Answer 2

Explanation:

Capitalization Method

(i) Capitalization of Average Profits: Under this method, the value of goodwill is calculated by deducting the actual capital employed from the capitalized value of the average profits on the basis of the normal rate of return. Goodwill = Normal Capital – Actual Capital Employed.