XII Accountancy Chapter 3 & 4 Reconstitution of partnership | Seite 5

Goodwill can not generate with in night but for generating goodwill any firm can take 10 to 20 years . Which is called long period is suitable for generating goodwill . If you are selling your old firm you can also demand the value of goodwill with total cost of your asset . If you think that Firm or company name is saleable in market .
Method of Calculating Goodwill
Correct calculation of goodwill is very difficult work . But with using correct formulae of specific method , you can easily calculate goodwill . There are four methods to calculate goodwill .
Ist Method
Average profit method
In this method , we calculate previous year ’ s profits average and then we multiply it with number of purchase years .
2nd Method
Super profit method
In this method , we calculate normal profit with normal rate on investment . Then we calculate super profit with following formula .
Super profit = actual profit – normal profit
or
Super profit = average profit - normal profit
Goodwill = super profit X No . of purchase years