The correct sequence involved in calculation of goodwill by weighted average profit method is :

A. Adjust the profit taking into account abnormal gain/loss.

B. Multiply the weighted average profit by number of years of purchase.

C. Assign weight to each years profit

D. Find out weighted average profit by dividing total weighted profit by total weight.

E. Find out weighted profit.

Choose the correct answer from the options given below :

A, C, E, D, B

The correct answer is option 1- A, C, E, D, B.

The correct sequence of calculating the value of goodwill through the weighted average profit method is as follows-

* Adjust the profit taking into account abnormal gain/loss - Firstly if there is any abnormal gain or loss then it is deducted or added respectively from the particular year's profit.

* Assign weight to each years profit- Give high weight to the profit of the recent year- Weights are assigned to all years in the numbering from 1,2,3 and so on. Higher weight is provided to the latest year's profit.

* Find out weighted profit- Now the weights assigned to year's profit and adjusted profit is multiplied to find out the product.

* Find out the weighted average profit by dividing the total weighted profit by total weight- After that total of the product and weights is done and then the total of product is divided by the total no of weights to find out the weighted average profit.

*  Multiply the weighted average profit by number of years of purchase - At last multiply the weighted average profit with no of years purchase to get value of goodwill.