One of the methods for the valuation of goodwill is to employ the capitalization method. The value of goodwill is computed using this method by subtracting the actual capital used from the capitalization value of typical earnings based on the usual rate of return.
In the Capitalization method, there are two different approaches to calculating profits:
- average Profit Method Capitalization
- The Super Profits Method of Capitalization
Method of Super Profits Capitalization
This approach involves capitalizing on the super profit at a regular rate of return and calculating the goodwill valuation.
The Capitalization of Super Profits Method's formula is
Capitalization of Super Profits Method = Average of Annual Super Profits x 100 / Normal rate of return
Example of Capitalization Method
The accompanying illustration can aid in better understanding the idea of the Capitalization of Average Profit Method.
By investing $3,000 in the capital, Kapoor and Associates may make an 80,000 profit. The average rate of return is 20%. The capitulation of super profit can be used to calculate goodwill value.
Normal profit = Capital employed x Normal rate of return / 100
= 3,00,000 x 20 / 100
Super profit = Average profit – Normal Profit
= 80000 – 60,000
Goodwill = Average of annual super profit x 100 / Normal Rate of return
= 20,000 x 100 / 20
Following are some of the multiple choice questions on the Super Profit Method with answers that will help the students in developing their knowledge.
Super Profit Method MCQ
1. If CP=Rs. 80; SP=Rs.120 then find profit percentage.
2. A boy had a bike for Rs 32,000 and was sold for Rs 46,000 . What was the boy's profit ?
3. Average profit of firm is ₹ 3,00,000.total tangible assets in the firm are ₹ 28,00,000 and outside liabilities ₹ 8,00,000.The NRR is 10% of capital employed.calculate goodwill by capitalisation of super profit method.
4. A firms earn ₹ 1,20,000 as its annual profits.The normal rate of profit being 10 % .Assets of the firm are ₹ 14,40,000 and liabilities are ₹ 4,40,000.Tick the correct option for goodwill by capitalisation method.
5. A boy had a bike for ₹ 32000 and was sold for ₹ 45000. What was the boy's profit?
6. How many general method(s) of goodwill valuation
8. Goodwill by super profit=
10. Capital employed in the business is ₹ 2,00,000,Normal rate of return(NRR) on capital employed is 15 % .During the year firm earned a profit of ₹ 48,000.Find the correct option if goodwill is 3 years purchase of super profit.
11. The profits for the last 3 years were- 1st year-4,000 ,IInd year-6,000 and IIIrd year-2,000.Select correct option for goodwill on the basis of 3 years purchase of average profit.
12. Find out that goodwill which is accounted for as per Accounting Standard 26
13. Which of the following is/are method(s) of valuation of goodwill ?
14. Nature of goodwill is
15. Which of the following factor(s) affect goodwill
17. How do you calculate profit?
18. Tom helped his uncle move. He spent $30 for gas for his truck, and $20 for work gloves. His uncle paid him $200 for his help. What was Tom's profit?
19. Evan earned $300 by doing yard work. His profit was $250. How much were his expenses?
20. How much Profit was made?Sell 2 candies for 10 baht. They cost costs 3 Baht each to buy.
21. How much Profit was made?Sell Lemonade for 40 baht a cup. It costs 20 Baht a cup to make.
22. How much Profit was made?Sell 2 Mangoes for 200 baht each. They cost costs 100 Baht each to buy.
23. How much Profit was made?Bought an iphone in Hong Kong for 20,000 Baht. Sold it in Bangkok for 30,000
24. How much Profit was made?Bought an iphone in China for 10,000 Baht. Sold it in Bangkok for 30,000 Baht
25. How much Profit was made?One cup of coffee costs 20 Baht to make. I sold 10 cups of coffee for 500 Baht.
26. How much Profit was made?Bought 1kg of bananas for 100 Baht. Sold them for 400 Baht.
27. How much Profit was made?Bought 3 packs of stickers for 30 Baht. Sold them for 20 baht EACH.
28. How much Profit was made?Buy a toy for 100 Baht. Sell it for 400.
29. How much Profit was made?Buy Roses for 30 Baht and Sell for 50 Baht
30. Find the selling price when:cost price = Rs.2475, loss = 8 %
31. Find the selling price, when:CP=Rs.600, profit = 13 %
32. Find the CP when:SP = Rs. 500 and profit = 10%
33. Find CP when:Loss = Rs. 20 and loss = 10 % on SP
34. Find the marked price when:Discount = 15% and SP= Rs. 1020
37. Percentage of profit =
38. Percentage of loss on SP =
40. Percentage of discount =
41. If CP =Rs. 500; SP = Rs.600 then find the profit % on SP.
42. If, loss = Rs.40 and SP = Rs.250 then find percentage of loss.
43. If, loss = Rs.20 and CP =Rs. 500 then find percentage of loss on SP.
44. State true or false: If C.P is more there will be a profit
45. If C.P is more there will be a profit
46. C P = 2000S.P = 5000FIND WHETHER ITS PROFIT OR LOSE
47. What is the formula of loss?
48. What is the formula of profit?
49. State true or false: loss=s.p-c.p
50. Find the loss:Sam bought a car for ₹634000 and sold for ₹623000
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