Question

Which step is not involved in valuing the goodwill according to super profit method:- *

1 point

a. Ascertain Average Profit

b. Ascertain Super Profit

c. Ascertain Normal Profit

d. Multiply Super Profit with Number of years purchased​

Answer 1

Answer:

c) ascertain normal profit

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Answer 2

Formulae for Calculating Goodwill according to super profit method is -

Step 1 - Calculate Average Capital Employed

Capital Employed = Capital + Reserves - Fictious Assets - Non Trade                         Investments  

Capital Employed can be calculated by adding all the assets excluding goodwill, non trade investments, non fictious assets and by deducting outside liabilities.

Step 2 - Then we need to calculate actual average business profit i.e. profit earned by a firm for the year is adjusted for abnormal gains and losses.

Step 3 - To calculate normal profit

Normal Profit = Average Capital Employed ×  $\frac{Normal rate of return }{100}$

Step 4 - To calculate super profit

Super Profit = Actual Average Profit - Normal Profit

Step 5 - To calculate goodwill

Goodwill = Super Profit ×  Number of year purchase.