3. Capitalisation by super proļ¬t method
Goodwill = super proļ¬t x
Normal rate of return
100
Super proļ¬t = actual/average proļ¬t - normal proļ¬t
Normal proļ¬t = capital employed x normal rate
100
ā Capital employed = Total assets - goodwill - non trade investments - ļ¬ctitious assets - outside liabilities
ā Capital employed = capital of partners + reserves - goodwill - non trade investments - ļ¬ctitious assets -
outside liabilities.
4. ILLUSTRATION
Average proļ¬t of the ļ¬rm is 1,50,000. Total tangible assets in the ļ¬rm are ā¹14,00,000 and outside
liabilities are ā¹4,00,000. In the same type of business, the normal rate of return is 10% of capital
employed.
Calculate value of goodwill by capitalisation of super proļ¬t method.
SOLUTION
Given: average proļ¬t = ā¹ 1,50,000
Total assets = ā¹14,00,000
Outside liabilities = ā¹4,00,000
Normal rate = 10%
Goodwill = super proļ¬t x 100
rate
= 59,000 x 100
10
= 5,90,000
Super proļ¬t = average - normal proļ¬t
= 1,50,000 - capital employed x rate
100
= 1,59,000 - 10,00,000 x 10
= 59,000 100
5. ILLUSTRATION
From the following information, calculate value of goodwill of Raj :
(a) On the basis of capitalisation of super proļ¬t.
(b) On the basis of capitalisation of average proļ¬t.
INFORMATION:
(1) Average capital employed- ā¹ 10, 00,000.
(2) Net proļ¬t/loss of the ļ¬rm for the past years: 2018-ā¹1, 60,000.,2019- ā¹ 1,40,000., 2020-ā¹
2,70,000.
(3) Normal rate of return on capital is 11 %
(4) Remuneration to each partner for his service to be treated as a charge on proļ¬t-ā¹ 2,500
per month.
(5) Assets (excluding goodwill) ā¹ 11,00,000., Liabilities-ā¹ 1,00,000.
6. Solution:
(a) Goodwill by capitalisation of super profit= super profit x 100
rate
Super profit= average normal profit - normal profit
= ā¹ 1,30,000 - ā¹ 1,10,000
= ā¹ 20,000
Goodwill= super profit x 100
11
= 20,000 x100
11
= ā¹ 1,81,118.18 or ā¹ 1,81,818.
ā Average normal profit= average profit - remuneration of partners
= ā¹ 1,90,000 - (ā¹ 2,500 x 2 x 12)
= ā¹ 1,30,000
ā Normal profit= capital employed x rate
100
= 10,00,000 x 11 = 1,10,000
100
Average profit= ā¹ 1,60,0000+ā¹ 1,40,000+ā¹ 2,70,000
3
= ā¹ 1,90,000
7. (b) Goodwill by capitalisation of average profit = Total capitalized value - Net assets
= average profit x 100 - total assets (excluding goodwill) - outside liabilities
normal rate of return
= ā¹ 1,30,000 x 100 - ā¹ 11,00,000 - ā¹ 1,00,000
11
= ā¹ 11,81,800- ā¹ 10,00,000
= ā¹ 1,81,818