What is meant by Capitalisation of Super Profit?

Capitalisation of Super Profit refers to the Capital that is required to earn the super profit at the normal rate of return.

For example, a firm earns a super profit ₹ 10,000. the normal rate of return of the business is 10%.

Thus the capital required to earn ₹ 10,000 at 10% is the Capitalised value of super profit.

Capitalised value of Super Profit = Super Profit × 100/Normal Rate of Return

Capitalised Value of Super Profit = 10,000 × 100/10 = ₹ 1,00,000

It is one of the method of Calculating the goodwill of the firm.

Capitalised Value of the super profit is itself the goodwill of the firm.

Thus in the above example, the goodwill of the firm would also be ₹ 1,00,000