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Course: Grade XII Accountancy
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Grade XII Accountancy

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Ch-2 Goodwill: Nature and Valuation

School Revise · Class 12 Accountancy · Chapter 2

Goodwill: Nature and Valuation

Goodwill is the value of a firm reputation. Here we value it by the average profit, super profit and capitalisation methods.

Average and super profit

Average profit method: goodwill = average profit × number of years purchase. Super profit = average profit − normal profit; goodwill = super profit × years purchase.

Capitalisation

Capitalisation method: capitalised value of profit = average profit / normal rate. Goodwill = capitalised value − capital employed.

Practise it yourself

A problem appears below. Work it out, type your answer, and press Check. Use Show working if stuck, Next for another, New set to reshuffle. Endless practice.

Worked examples

Profits 40,000; 50,000; 60,000; 2 years purchase.

Average 50,000 × 2 = 1,00,000.

Average profit 60,000; normal profit 40,000; 3 years of super profit.

Super 20,000 × 3 = 60,000.

Average profit 50,000; normal rate 10%; capital employed 4,00,000.

Capitalised 5,00,000 − 4,00,000 = 1,00,000.

Quick summary

Goodwill is valued three ways: average profit (average × years purchase); super profit (super profit × years, where super = average − normal profit); and capitalisation (capitalised value of profit − capital employed). Normal profit = capital employed × normal rate.

© 2026 School Revise. Original content aligned to the CBSE and NCERT Class 12 Accountancy syllabus. Unauthorised copying is not permitted.

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