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BRILLIANT’S Long Term Financing and Valuation of Goodwill & Shares 217

However, in the technical sense the experts ¶Ú{n VH$ZrH$r AW© ‘| {deofkm| H$s gwna àm°{’$Q> H$s
have a different concept of super profit which {^ÝZ AdYmaUm hmoVr h¡ {OgH$m ZrMo dU©Z {H$¶m Om
may be enumerated as under: gH$Vm h¡…
On starting the business, every business- O~ ì¶mnma àma§^ H$aVo h¢ Vmo à˶oH$ ì¶mnmar [aQ>Z©
man expects a minimum rate of return, which
Ho$ ݶyZV‘ aoQ> H$s Anojm H$aVm h¡ Omo ì¶mnma H$s àH¥${V,
is based on nature of business, amount invested {Zdoe H$s J¶r am{e, ~mOma ‘| gm‘mݶ ã¶mO Xa na
and general rate of interest in the market. If he
earns more than expected normal profit, the AmYm[aV hmoVr h¡& ¶{X dh Ano{jV gm‘mݶ bm^ go A{YH$
excess is considered as super profit. H$‘mVm h¡ Vmo A{V[a³V H$mo gwna àm°{’$Q> ‘mZm OmVm h¡&
Under this method, for calculating good- Bg {d{Y Ho$ A§VJ©V JwS>{db H$s JUZm Ho$ {bE
will, the following procedures are applied: {ZåZ{b{IV à{H«$¶mE§ bmJy H$s OmVr h¢…
Step I: Calculate capital employed (it is the MaU I… à¶w³V H¡${nQ>b H$s JUZm (¶h eo¶ahmoëS>g©
total of share-holder's equity (+) long H$s B{³dQ>r (+) bm§J Q>‘© S>oãQ> ¶m {’$³ñS>
term debt or fixed assets (+) net cur-
rent assets). AgoQ²>g (+) ZoQ> H$a§Q> AgoQ²>g H$m ¶moJ h¡)&
Step II: Calculate normal return by multiply- MaU II… à¶w³V H¡${nQ>b H$mo [aQ>Z© H$s gm‘mݶ aoQ> go
ing capital employed with normal JwUm H$aHo$ gm‘mݶ [aQ>Z© H$s JUZm H$aZm&
rate of return.
Step III: Calculate average profit of the busi- MaU III… ì¶mnma Ho$ EdaoO àm°{’$Q> H$s JUZm H$aZm
ness (after adjustment of abnormal (Ag‘mݶ VWm {d{eï> dñVwAm| Ho$ g‘m¶moOZ
and extraordinary items) Ho$ níMmV²)&
Step IV: Calculate the difference between the MaU IV… EdaoO àm°{’$Q> VWm Zm°‘©b [aQ>Z© Ho$ ~rM A§Va
average profit and normal return (as
H$s JUZm H$aZm (O¡gm MaU II VWm MaU III
calculated above in step II and step
III). The difference is called super ‘| D$na JUZm H$s J¶r h¡)& Bg A§Va H$mo gwna
profit. àm°{’$Q> H$hm OmVm h¡&
Step V: Multiply that super profit by the MaU V… Cg gwna àm°{’$Q> H$mo df© H$s nM}g go JwUm H$a|&
number of year's purchase. The result n[aUm‘ JwS>{db H$m ‘mZ hmoJm&
will be the value of the goodwill.
3. Capitalization of profit method: There 3. àm°{’$Q> H$m H¡${nQ>bmBOoeZ ‘oWS>… H¡${nQ>bmBOoeZ
are two methods for finding out Goodwill by ‘oWS> Ûmam JwS>{db nVm H$aZo H$s Xmo {d{Y¶m§ h¢…
capitalization method:
(a) Capitalization of Average Profit (a) EdaoO àm°{’$Q> H$m H¡${nQ>bmBOoeZ
(b) Capitalization of Super Profit (b) gwna àm°{’$Q> H$m H¡${nQ>bmBOoeZ
(a) Capitalization of Average Profit (a) EdaoO àm°{’$Q> H$m H¡${nQ>bmBOoeZ ‘oWS>… Bg
Method: Under this method, the business unit {d{Y Ho$ A§VJ©V {ZåZ{b{IV ’$m°‘y©bm à¶w³V H$aHo$ {~OZog
is valued by applying the following formula: ¶y{ZQ> H$m ‘yë¶ bJm¶m OmVm h¡…

Average Profit
Total value of the firm   100
Normal Rate of Return