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

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**