This document outlines three methods for valuing goodwill: the average profit method, super profit method, and capitalization method. The average profit method calculates goodwill as the average normal profit multiplied by the number of years' purchase. The super profit method determines goodwill as the super profit - the adjusted average profit minus the normal profit - multiplied by the number of years' purchase. The capitalization method values goodwill as either the capitalized value of the average normal profit or the capitalized value of the super profit.
This document outlines three methods for valuing goodwill: the average profit method, super profit method, and capitalization method. The average profit method calculates goodwill as the average normal profit multiplied by the number of years' purchase. The super profit method determines goodwill as the super profit - the adjusted average profit minus the normal profit - multiplied by the number of years' purchase. The capitalization method values goodwill as either the capitalized value of the average normal profit or the capitalized value of the super profit.
This document outlines three methods for valuing goodwill: the average profit method, super profit method, and capitalization method. The average profit method calculates goodwill as the average normal profit multiplied by the number of years' purchase. The super profit method determines goodwill as the super profit - the adjusted average profit minus the normal profit - multiplied by the number of years' purchase. The capitalization method values goodwill as either the capitalized value of the average normal profit or the capitalized value of the super profit.
This document outlines three methods for valuing goodwill: the average profit method, super profit method, and capitalization method. The average profit method calculates goodwill as the average normal profit multiplied by the number of years' purchase. The super profit method determines goodwill as the super profit - the adjusted average profit minus the normal profit - multiplied by the number of years' purchase. The capitalization method values goodwill as either the capitalized value of the average normal profit or the capitalized value of the super profit.
Average Profit Method Super Profit Method Capitalisation Method
Adjusted Average Profit = Average Profit
Adjusted by Deducting Abnormal Gains and by adding Abnormal Losses Simple Average Weighted Average Profit Method Profit Method Capitalisation of Average Capitalisation of Normal Profit Super Profit Determine Capital Employed, if not given Determine Normal Profit* Determine Normal Profit* Calculate Capital Determine Normal Profit and Capitalised Value Employed Normal Rate of Return (NRR), 100 Assign weight to each year if not given = Average Normal Profit × NRR Average Profit = Calculate Normal Profit Total Normal Profit Normal Profit = Average on Capital Employed Determine Weighted Profit: Number of Years Normal Profit × Weight Assigned NRR Net Assets Capital Employed × 100 = All Assets (Other Than Goodwill, Non-trade Investments and Calculate Average Total the Weights and Fictitious Assets) at their Current Total of Weighted Profit (Product) Super Profit = Adjusted Profit of Past Years Number of Years’ Purchase Values minus Outsiders’ Liabilities Average Profit – Normal Profit
Weighted Average Profit = Calculate Super Profit,
Numbers of Years’ Purchase i.e., Actual Average Total of Weighted Profit (Product) Goodwill = Capitalised Value – Net Assets Goodwill = Average Profit × Profit – Normal Profit Number of Years’ Purchase Total of Weights Goodwill = Super Profit × Number of Years’ Purchase Number of Years’ Purchase Goodwill = 100 Super Profit × NRR
Goodwill = Weighted Average
Profit × Number of Years’ Purchase
*Normal Profit = Net Profit is adjusted by adding abnormal losses and by deducting abnormal gains of past years to determine Normal Profit.
