Under the capitalisation method, the formula for calculating the goodwill is
A)Super profits multiplied by the rate of return
B)Average profits multiplied by the rate of return
C)Super profits divided by the rate of return
D)Average profits divided by the rate of return

Question

Quizplus · Accepted Answer

Goodwill under the capitalisation method is calculated by dividing the super profits by the normal rate of return. Super profits are the excess of actual profits over the expected (normal) profits.

Under the Capitalisation Method, the Formula for Calculating the Goodwill