Choose the correct order in calculation of the goodwill of the firm b…

Choose the correct order in calculation of the goodwill of the firm by Super Profit Method.

A. Calculation of Super Profit

B. Calculation of Normal Profit

C. Calculation of Capital Employed by the firm

D. Calculation of goodwill of the firm

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → C, B, A, D

Under the super profit method, goodwill is the super profit multiplied by the number of years’ purchase, and each figure in the chain can be worked out only after the one before it.

(C) Calculation of Capital Employed by the firm — comes first, because the normal profit is worked out on it.
(B) Calculation of Normal Profit — capital employed × normal rate of return / 100.
(A) Calculation of Super Profit — average profit − normal profit.
(D) Calculation of goodwill of the firm — super profit × number of years’ purchase.

The book’s list of steps begins with the average profit, which the question does not list as a step; the capital employed (C) is the base of the book’s second step, the normal profit on the firm’s capital, so it comes before (B).

NCERT (2026-27 edition):
Super Profits Method – “… The goodwill under the super profit method is ascertained by multiplying the super profits by certain number of years’ purchase. If, in the above example, it is expected that the benefit of super profits is likely to be available for 5 years in future, the goodwill will be valued at Rs. 15,000 (3,000 × 5). 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.”