Arrange the steps in the correct sequence while calculating goodwill by capitalization of average profit method:
(A) Ascertain the actual firm's capital (net assets)
(B) Compute the value of goodwill
(C) Compute the capitalized value of the average profits
(D) Ascertain the average profits
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (D), (C), (A), (B)
Under the capitalisation of average profits method, goodwill is the excess of the capitalised value of average profits over the actual capital (net assets) of the firm. The steps run in this order:
(D) Ascertain the average profits
(C) Compute the capitalized value of the average profits
(A) Ascertain the actual firm's capital (net assets)
(B) Compute the value of goodwill
Note: In the original question, both Option (2) and Option (4) were correct as per the NTA Answer Key. The paper printed Option (2) as (D), (A), (C), (B) and Option (4) as (D), (C), (A), (B). For the benefit of students and to ensure a single answer, Option (2) has been changed to (D), (C), (B), (A).
NCERT (2026-27 edition):
|
