State the order of steps required for valuation of goodwill by using super profit method.
A. Calculate Normal Profit
B. Calculate Average Profit
C. Calculate Super Profit
D. Calculate Goodwill
E. Calculate Capital Employed
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → B, E, A, C, D
Goodwill by the super profit method is the excess of average profit over normal profit, multiplied by the number of years’ purchase.
B. Calculate Average Profit — the actual average profit of past years comes first.
E. Calculate Capital Employed — it is needed to work out the normal profit.
A. Calculate Normal Profit — capital employed × normal rate of return.
C. Calculate Super Profit — average profit − normal profit.
D. Calculate Goodwill — super profit × number of years’ purchase.
NCERT (2026-27 edition):
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