Arrange the following steps for calculating Goodwill under Capitalisation of Average Profits Method in correct sequence.
(A) Ascertain the actual firm's capital (net assets) by deducting outside liabilities from the total assets.
(B) Compute the value of goodwill by deducting net assets from the capitalised value of average profits.
(C) Ascertain the average profits based on the past few years' performance.
(D) Capitalize the average profits on the basis of the normal rate of return to ascertain the capitalised value of average profits.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (C), (D), (A), (B)
Under the capitalisation of average profits method the steps are:
(C) Ascertain the average profits based on the past few years’ performance.
(D) Capitalise the average profits at the normal rate of return.
(A) Ascertain the actual firm’s capital (net assets).
(B) Compute goodwill by deducting net assets from the capitalised value.
NCERT (2026-27 edition):
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