Give the formula for calculation of Goodwill by ‘Capitalisation of Average Profit.’

The following are the step

Step 1:

Calculate the average normal profit.

Step 2:

Calculate Capitalised value of the firm by using the formula given below:

Capitalised Value of the Business = Average Profit × 100/Normal Rate of Return (Profit)

Step 3:

Determine the value of Net Assets, on the date of Valuation of Goodwill.

Net Assets = All Assets (other than goodwill, non-trade investments, and fictitious assets) at their current values minus outside liabilities.

Step 4: 

Goodwill = Capitalised Value of the Business (as per Step 2) – Net Assets (as per Step 3)