To calculate the value of Goodwill by Super Profit Method following steps take place. Arrange them in correct sequence.
(A) Calculate the Average Profit
(B) Calculate the Super Profit
(C) Calculate Capital Employed
(D) Calculate goodwill by multiplying the Super Profit by the given number of years purchase
(E) Calculate the Normal Profit on the Capital Employed
Choose the correct answer from the options given below :
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A), (C), (E), (B), (D)
Under the super profits method, goodwill is the super profit (average profit above the normal profit) multiplied by the number of years' purchase.
(A) Calculate the Average Profit — first. Average profit is the starting figure.
(C) Calculate Capital Employed — second. The normal profit is worked out on the capital employed.
(E) Calculate the Normal Profit on the Capital Employed — third. Normal profit = capital employed × normal rate of return/100.
(B) Calculate the Super Profit — fourth. Super profit = average profit − normal profit.
(D) Calculate goodwill by multiplying the Super Profit by the given number of years purchase — last.
NCERT (2026-27 edition):
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