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Super Profit Method Video Lecture | Accountancy Class 12 - Commerce

47 videos|109 docs|56 tests

FAQs on Super Profit Method Video Lecture - Accountancy Class 12 - Commerce

1. What is the Super Profit Method in commerce?
Ans. The Super Profit Method in commerce is a technique used to calculate the value of goodwill in a business. It is based on the assumption that a business's goodwill can be valued by multiplying its average profit by a certain number of years.
2. How is the Super Profit Method used to determine the value of goodwill?
Ans. The Super Profit Method calculates the value of goodwill by subtracting the normal rate of return on capital from the actual profits of a business. The resulting figure is then multiplied by a predetermined number of years to arrive at the value of goodwill.
3. Can the Super Profit Method be applied to all types of businesses?
Ans. The Super Profit Method can be applied to most types of businesses, especially those with a significant amount of goodwill. However, it may not be suitable for businesses with fluctuating profits or those in highly competitive industries where goodwill is less significant.
4. What are the limitations of the Super Profit Method?
Ans. The Super Profit Method has several limitations. It assumes that the future profits of a business will be consistent, which may not always be the case. It also relies on the accuracy of financial data and the chosen multiplier, which can be subjective. Additionally, the method does not consider factors such as market conditions or changes in the industry.
5. Are there alternative methods for valuing goodwill in commerce?
Ans. Yes, there are alternative methods for valuing goodwill in commerce. Some commonly used methods include the Capitalization of Earnings Method, the Market Capitalization Method, and the Excess Earnings Method. These methods take into account various factors such as future earnings potential, market value, and excess earnings generated by the business.
47 videos|109 docs|56 tests

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