While calculating Goodwill under super profit method, the sequence followed is:
(A) Calculation of Super profit
(B) Calculation of Capital Employed
(C) Calculation of Normal profit
(D) Calculation of Average profit
(E) Calculation of Goodwill
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (D), (B), (C), (A), (E)
Under the super profits method, goodwill is the value of the profits earned above the normal return on capital. Each step needs the result of the one before it:
(D) Calculation of Average profit — first find what the firm actually earns in a normal year.
(B) Calculation of Capital Employed — the capital on which a normal return is expected.
(C) Calculation of Normal profit — capital employed × normal rate of return.
(A) Calculation of Super profit — average profit minus normal profit.
(E) Calculation of Goodwill — super profit × number of years’ purchase.
NCERT (2026-27 edition):
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