Question : Under the super profit method, goodwill is calculated by
Option 1: Number of years purchase X Average profit
Option 2: Number of years purchase X Super profit
Option 3: super profit/normal rate of return
Option 4: super profit - normal profit
Correct Answer: Number of years purchase X Super profit
Solution : Answer = number of year purchase X super profit
Under the super profit method, goodwill is calculated by multiplying the super profit by the number of years of purchase. This method assesses the excess profit generated by a business beyond the normal rate of return and quantifies it over a specific period to determine the value of goodwill.
Goodwill = super profit X no. of years purchase
Hence, the correct option is 2.
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