Arrange the following steps in correct order to calculate the value of Goodwill by super profit method.
A. Calculate Capital Employed
B. Calculation of Average profit
C. Calculate Super profit
D. Calculate normal profit
E. Calculate value of Goodwill
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → B, A, D, C, E
Under the super profit method, goodwill is paid only for profits earned above the normal return on capital employed.
B. Calculation of Average profit — first, the profits of past years are averaged.
A. Calculate Capital Employed — next, the capital employed is found, because the normal profit is worked out on it.
D. Calculate normal profit — capital employed × normal rate of return / 100.
C. Calculate Super profit — average profit − normal profit.
E. Calculate value of Goodwill — super profit × number of years’ purchase.
NCERT (2026-27 edition):
|
