Q.A firm's average profit is ₹2,00,000, its net capital employed is ₹15,00,000, and the normal rate of return is 10%. Find the value of goodwill by capitalizing the super profit.

Instead of capitalizing the whole average profit and then subtracting capital employed, this variant capitalizes only the extra (super) profit directly, giving the goodwill figure in one step.

Step 1 — Compute Normal Profit:

Normal Profit = Capital Employed × Normal Rate of Return = 15,00,000 × 10% = ₹1,50,000

Step 2 — Compute Super Profit:

Super Profit = Average Profit − Normal Profit = 2,00,000 − 1,50,000 = ₹50,000

Step 3 — Capitalize the Super Profit: …

Cross-check using the Capitalization of Average Profit variant: Capitalized Value = 2,00,000 × (100÷10) = 20,00,000; Goodwill = 20,00,000 − 15,00,000 = 5,00,000 — the same answer as capitalizing …

Students sometimes multiply the super profit by the number of years' purchase (as in the Super Profit Method) instead of by (100 ÷ Normal Rate of Return), mixing up the two different methods. …