Goodwill by super profit method, capital employed by asset approach, capital employed by liabilities approach,

1. Goodwill by super
profit method
By Raj Narayan Yadav

2. Goodwill = super profit x no. of years purchase
Super Profit =( Actual / Average Profit – Normal Profit.)
Normal profit = Capital employed x rate /100
Capital Employed means capital invested in the business by the partners. It may
also be termed as ‘Firm’s Capital.

3. How to compute capital employed or firm’s capital
Asset approach
Capital employed = Total assets - Goodwill - Non-trade Investments -
Fictitious Assets - outside liabilities.
● Trade Investments are the investments made by the enterprise (firm) in another enterprise for the
furtherance or for better operations of own business.
● Non-trade Investments are the investments made with the purpose to earn income from it.
● Fictitious assets are assets which are neither tangible assets nor intangible assets but represent loss or
expenses yet to be written off. Example are debit balance of profit and loss account, Deferred
advertisement expenditure, Deferred revenue expenditure.

6. How to compute capital employed or firm’s capital
Liabilities approach
Capital employed = Capital of partners+ Reserves - Goodwill - Non-trade
Investments - Fictitious Assets

9. Normal profit = capital employed x rate/100
Normal profit = ( 20,00,000-5,00,000) x10/100
= 1,50,000
Super Profit = Average Profit – Normal Profit = ₹ 1,98,000 ─ ₹ 1,50,000 = ₹ 48,000
Goodwill = Super Profit x Number of Years Purchase = ₹ 48,000 x 3 = ₹ 1,44,000