Accountancy Part AAdmission of a Partner

Arrange the steps involved under the super profit method of calculati…

Arrange the steps involved under the super profit method of calculating goodwill-

(A) Calculate the normal profit on the firm's capital on the basis of the normal rate of return
(B) Calculate the average profit
(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) → (B), (A), (D), (C)

Under the super profit method, goodwill is worked out in four steps, in this order:

(B) Calculate the average profit

(A) 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):
Super Profits Method – “… 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.”