Arrange the following steps related to valuation of goodwill by Capitalisation of Average Profits method.
(A) Deducting net assets from the capitalised value of average profit.
(B) Ascertain the average profit based on the past few years' performance.
(C) Capitalize the average profit on the basis of the normal rate of return to ascertain the capitalised value of average profits.
(D) Ascertain the actual firm's capital (net assets) by deducting outside liabilities from the total assets (excluding goodwill and fictitious assets).
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (B), (C), (D), (A)
(B) Ascertain the average profit based on the past few years' performance.
(C) Capitalize the average profit on the basis of the normal rate of return to ascertain the capitalised value of average profits.
(D) Ascertain the actual firm's capital (net assets) by deducting outside liabilities from the total assets (excluding goodwill and fictitious assets).
(A) Deducting net assets from the capitalised value of average profit.
NCERT (2026-27 edition):
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