Identify the steps involved in calculating goodwill under the capitalization of super profits method:
(A) Calculate capital of the firm, which is equal to total assets (excluding goodwill and fictitious assets) minus outside liabilities
(B) Multiply the super profits by the required rate of return multiplier
(C) Calculate normal profits on capital employed
(D) Calculate super profits by deducting normal profits from average profits
(E) Calculate average profit for past years
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (C), (E), (D), (B)
Under the capitalisation of super profits method goodwill is found from the super profits directly, in these steps:
(A) Calculate the capital of the firm: total assets (excluding goodwill and fictitious assets) minus outside liabilities.
(C) Calculate normal profits on that capital employed.
(E) Calculate average profit for past years.
(D) Calculate super profits: average profits minus normal profits.
(B) Multiply the super profits by the required rate of return multiplier (100 / normal rate of return).
NCERT (2026-27 edition):
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