Give the formula for Calculation of Goodwill by Capitalisation of Super Profit Method

For calculating the goodwill under this method, the steps are:

Step 1:

Calculate Capital Employed (i.e., Net Assets as on the date of valuation) of the firm:

Net Assets = All Assets (except goodwill, non-trade investments, and fictitious assets ) – Outside Liabilities.

Step 2:

Calculate the Normal Profit on Capital Employed by using the following formula:

Normal Profit = Capital Employed × Normal Rate of Return/100

Step 3:

Calculate the Average Profit of past years, i.e., three to five years.

Step 4:

Calculate Super Profit, i.e., Average Profit – Normal Profit.

Step 5:

Goodwill = Super profit × 100/Normal Rate of Return