CUET UG 2025 — Accountancy Partnership

Under the Capitalisation of Super Profit Method, goodwill is calculated by directly capitalising the super profit.

In this method, super profit is converted into its capital value by applying the normal rate of return as the capitalisation rate.

The formula used is:

$$\text{Goodwill} = \frac{\text{Super Profit} \times 100}{\text{Normal Rate of Return}}$$Goodwill=Normal Rate of ReturnSuper Profit×100​

or

$$\text{Goodwill} = \frac{\text{Super Profit}}{\text{Normal Rate of Return (in decimal)}}$$Goodwill=Normal Rate of Return (in decimal)Super Profit​

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For clarity, super profit is the excess of actual profit over normal profit, where:

$$\text{Super Profit} = \text{Actual Profit} - \text{Normal Profit}$$Super Profit=Actual Profit−Normal Profit

$$\text{Normal Profit} = \frac{\text{Capital Employed} \times \text{Normal Rate of Return}}{100}$$Normal Profit=100Capital Employed×Normal Rate of Return​

The key distinction is that this method directly capitalizes (converts to capital value) the super profit, rather than multiplying it by a certain number of years as done in the Super Profit Method.