Arrange the steps of method, Capitalization of Average for the calculation of goodwill, in the correct sequence:

(A) Capitalize the average profits on the basis of the normal rate of return to ascertain the capitalized value of average profits as follows: Average Profits × 100/Normal Rate of Return
(B) Ascertain the average profits based on the past few years' performance.
(C) Ascertain the actual firm's capital (net assets) by deducting outside liabilities from the total assets (excluding goodwill and fictitious assets). Firms' Capital = Total Assets (excluding goodwill) - Outside Liabilities
Where outside Liabilities include both long term and short term Liabilities
(D) Compute the value of goodwill by deducting net assets from the capitalized value of average profits,

Choose the correct answer from the options given below:

(B), (A), (C), (D)

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

• (B) Ascertain the average profits → Calculate average profits based on the past years’ performance.

• (A) Capitalize the average profits →

  Capitalized Value of Business=Average Profits×100/ Normal rate of return

• (C) Ascertain the actual firm’s capital (net assets) →

                 Firm’s Capital=Total Assets (excl. goodwill)−Outside Liabilities

• (D) Compute goodwill → Goodwill=Capitalized Value of Business−Net Assets