Question : Under the Capitalisation Method of valuation of Goodwill, the formula for calculating goodwill is:
Option 1: Super profits multiplied by the rate of return
Option 2: Average profits multiplied by the rate of return
Option 3: Super profits are divided by the rate of return
Option 4: Average profits divided by the rate of return
Correct Answer: Super profits are divided by the rate of return
Solution : Answer = Super profits divided by the rate of return.
In the Capitalisation Method of goodwill valuation, goodwill is calculated by dividing the super profits by the rate of return. Super profits represent the excess earnings above normal returns, and dividing them by the rate of return helps determine the capitalised value of these excess profits, representing goodwill.
Goodwill = $\frac{\text{super profit}}{\text{rate of return}}\times 100$ Hence, the correct option is 3.
Question : Under which method of valuation of goodwill, normal rate of return is not considered?
Question : Under the super profit method, goodwill is calculated by
Question : From the following information, (i) Capitalisation Method and (ii) at 3 year’s purchase of super profits: What will be the amount of goodwill?
(i) Total Assets Rs. 10,00,000
(ii) External Liabilities Rs. 1,80,000
(iii) Normal Rate of Return
Question :
The Formula for Capitalisation of Super Profit Method is:
Question : Following are the methods of calculating goodwill except:
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