Arrange the following steps in sequence, related to calculation of goodwill by capitalisation of super profits method.
(A) Calculate super profits.
(B) Multiply the super profits by the required rate of return multiplier
(C) Calculate capital of the firm, which is equal to total assets (excluding goodwill and fictitious assets) minus outside liabilities.
(D) Calculate normal profits on capital employed and average profits for past years.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (C), (D), (A), (B)
The capitalisation of super profits method values goodwill directly from the super profit. The steps run in this order:
(C) Calculate capital of the firm, which is equal to total assets (excluding goodwill and fictitious assets) minus outside liabilities.
(D) Calculate normal profits on capital employed and average profits for past years.
(A) Calculate super profits.
(B) Multiply the super profits by the required rate of return multiplier
NCERT (2026-27 edition):
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