Accountancy Part AAdmission of a Partner

Arrange the following steps involved under super profit method of cal…

Arrange the following steps involved under super profit method of calculating goodwill in a sequence:

(A) Calculate the normal profit on the firm's capital on the basis of the normal rate of return.

(B) Calculate the super profits by deducting normal profit from the average profits.

(D) Calculate the average profit.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → (D), (A), (B), (C)

Under the super profits method, goodwill is the value of the profits earned above the normal profit. The steps run:

(D) Calculate the average profit.
(A) Calculate the normal profit on the firm’s capital on the basis of the normal rate of return.
(B) Calculate the super profits by deducting normal profit from the average profits.
(C) Calculate goodwill by multiplying the super profits by the given number of years’ purchase.

NCERT (2026-27 edition):
Methods of Valuation of Goodwill – “… Thus, the steps involved under the method are: 1. Calculate the average profit, 2. Calculate the normal profit on the firm’s capital on the basis of the normal rate of return, 3. Calculate the super profits by deducting normal profit from the average profits, and 4. Calculate goodwill by multiplying the super profits by the given number of years’ purchase.”