What is the sequence of calculating goodwill by method of capitalization of super profits?

a) Calculate normal profits on capital employed.
b) Multiply the super profits by the required rate of return multiplier, that is, Goodwill = Super Profits × 100/ Normal Rate of Return
c) Calculate super profits by deducting normal profits from average profits.
d) Calculate capital of the firm, which is equal to total assets (excluding goodwill and fictitious assets) minus outside liabilities. 
e) Calculate average profit for past years, as specified.

daecb

The correct answer is option 3- daecb.

Capitalisation of Super Profits: Goodwill can also be ascertained by capitalising the super profit directly. Under this method there is no need to work out the capitalised value of average profits. It involves the following steps. 

(d) Calculate capital of the firm, which is equal to total assets (excluding goodwill and fictitious assets) minus outside liabilities.
(a) Calculate normal profits on capital employed.
(e) Calculate average profit for past years, as specified.
(c) Calculate super profits by deducting normal profits from average profits.
(b) Multiply the super profits by the required rate of return multiplier, that is, Goodwill = Super Profits × 100 / Normal Rate of Return.