Arrange the following in the sequence to determine Goodwill by Super…

Arrange the following in the sequence to determine Goodwill by Super Profit Method.

A. Calculate the normal profit
B. Calculate the average profit
C. Make adjustment to yearly profits for abnormal profits and abnormal losses
D. Calculate the Super profit
E. Calculate goodwill of the firm

Choose the correct answer from the options given below.

Answer & explanation

Correct answer: option 3

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

(C) Adjust the yearly profits for abnormal gains and losses first, so that only normal, recurring profits are averaged.

(B) Calculate the average profit of the adjusted figures.

(A) Calculate the normal profit = capital employed × normal rate of return.

(D) Calculate the super profit = average profit − normal profit.

(E) Calculate goodwill = super profit × number of years’ purchase.

The book lists four steps from the average profit onwards; the adjustment of the past profits is shown in its working on adjusted profits, made before averaging.

NCERT (2026-27 edition):
Calculation of Adjusted Profit

Extract from the NCERT textbook

NCERT (2026-27 edition):
Methods of Valuation of Goodwill – “… The goodwill under the super profit method is ascertained by multiplying the super profits by certain number of years’ purchase. If, in the above example, it is expected that the benefit of super profits is likely to be available for 5 years in future, the goodwill will be valued at Rs. 15,000 (3,000 × 5). 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.”