What is the correct sequence of calculating the value of goodwill through the average profit method?
a) Divide the total of all year's profit by The number of years
b) Adjust each year's profits if there are any abnormal profits or losses
c) Multiply average profit with the Number of years purchase
d) Total the profit of all years

bdac

The correct sequence of calculating goodwill through average profit method is-
* Adjust each year's profits if there are any abnormal profits or losses - Firstly if there is any abnormal gain or loss then it is deducted or added respectively from the particular year's profit.
* Total the profit of all years- After adjusting the profit of all years then the total of all adjusted profit is done.
* Divide the total of all year's profit by The number of years- Now just divide the total profit by the no of years for which profit is taken to find out the average profit of the firm.
* Multiply average profit with the Number of years purchase- At last multiply the average profit with no of years purchase to get value of goodwill.