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What is meant by "Super Profit" in relation to Valuation of Goodwill ?

Answer»

Super Profit refers Excess Profit Earned by a Firm in comparison to Normal Profit Earned. Thus, if a Firm has No Excess Profit , it will Not have Goodwill. 

For instance, if a Firm has Invested Rs 1,00,000 and Rate of Return is 8 % on Capital Employed , it has earned Rs 23,000 as Actual Profit during the year.

The Normal Profit Earned is Rs 1,00,000 x 8/100 = 8,000

The Super Profit = Actual Profit – Normal Profit

= Rs 23,000 – Rs 8,000 = Rs 15,000



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