Question

How is goodwill calculated under the super profits method?

Answer 1

1. Purchase of super profit method: Goodwill is calculated by multiplying the super profit by a certain number of years of purchase.
   Goodwill = Super profit × No. of years of purchase

2. Annuity method: Value of goodwill is calculated by multiplying the super profit with the present value of the annuity.
   Goodwill = Super profit × Present value annuity factor

3. Capitalisation of super profit method:
   Goodwill = `"Super profit"/"Normal rate of return" xx 100`