Arrange the following steps which involve the Super Profits Method of valuation of goodwill in the correct sequence.
(A) Calculate the average profit
(B) Calculate the normal profit on the firm's capital on the basis of the normal rate of return
(C) Calculate goodwill by multiplying the super profits by the given number of years' purchase
(D) Calculate the super profits by deducting normal profit from the average profits
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A), (B), (D), (C)
Under the super profits method, goodwill is worked out in this order:
(A) Calculate the average profit
(B) Calculate the normal profit on the firm’s capital on the basis of the normal rate of return
(D) Calculate the super profits by deducting normal profit from the average profits
(C) Calculate goodwill by multiplying the super profits by the given number of years’ purchase
NCERT (2026-27 edition):
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