Accountancy Part AAdmission of a Partner

The correct sequence of the steps involved under the Super Profits Me…

The correct sequence of the steps involved under the Super Profits Method of valuation of the goodwill is:

A. Calculate goodwill by multiplying the super profits by the given number of years’ purchase.

B. Calculate the super profits by deducting normal profit from the average profits.

C. Calculate the normal profit on the firm’s capital on the basis of the normal rate of return.

D. Calculate the average profit.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → D, C, B, A

Under the super profits method, goodwill is the value of the profit a firm earns above the normal profit of a similar business. Each step uses the result of the one before it.

D. Calculate the average profit.
C. Calculate the normal profit on the firm’s capital on the basis of the normal rate of return.
B. Calculate the super profits by deducting normal profit from the average profits.
A. Calculate goodwill by multiplying the super profits by the given number of years’ purchase.

NCERT (2026-27 edition):
Methods of Valuation of Goodwill – “… Thus, the steps involved under the method are: 1. Calculate the average profit, 2. Calculate the normal profit on the firm’s capital on the basis of the normal rate of return, 3. Calculate the super profits by deducting normal profit from the average profits, and 4. Calculate goodwill by multiplying the super profits by the given number of years’ purchase.”