Arrange the following steps for calculation of goodwill using the Super Profit Method:
(A) Calculate goodwill by multiplying the super profits by the given number of years' purchase.
(B) Calculate the super profits by deducting normal profit from the average profits.
(C) Calculate the normal profit on the firm's capital on the basis of the normal rate of return.
(D) Calculate the average profit.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (D), (C), (B), (A)
Goodwill by the super profit method is found in four steps, each using the figure from the step before:
(D) Calculate the average profit.
(C) 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.
(A) Calculate goodwill by multiplying the super profits by the given number of years’ purchase.
NCERT (2026-27 edition): |