# distinguish between average profit and super profit method of valuation of goodwill and the tabular form

Difference between average profit and super profit methods are:-

Basis | Average profit | Super profit |

1. Meaning | It is average of the profits of past few years. | It is excess of average profit over normal profit. |

2. Normal rate of return | Normal rate of return is not relevant in the calculation of average profit. | Normal rate of return is considered while calculating the super profit. |

3. Average capital employed | Average capital employed is not considered while calculating average profit. | Average capital employed is taken into account while calculating the super profit. |

4. Formula for valuing goodwill | Goodwill = Average profits X Number of years purchased | Goodwill = Super profit X Number of years purchased |

Regards

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