The following steps are followed to ascertain average profit when goo…

The following steps are followed to ascertain average profit when goodwill is determined on the basis of super profit method. Arrange them in proper sequence.

(A) Ascertain super profit of the firm.

(B) Calculate goodwill of the firm on the basis of super profit.

(D) Find out normal profit of the firm.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → (B), (A), (D), (C)

Note: The given answer is as per the official NTA Answer Key. However, the answer given by NTA appears to be incorrect, and the correct answer should be Option (2), because goodwill under the super profit method cannot be worked out before the super profit is known, as explained below.

Under the super profit method, goodwill is the super profit multiplied by the number of years’ purchase, and the super profit is the average profit less the normal profit. So each step needs the result of the one before it:

(C) Ascertain average profit of the firm.

(D) Find out normal profit of the firm.
Normal profit = Firm’s capital × Normal rate of return / 100

(A) Ascertain super profit of the firm.
Super profit = Average profit − Normal profit

(B) Calculate goodwill of the firm on the basis of super profit.
Goodwill = Super profit × Number of years’ purchase

Option (1) (B), (A), (D), (C) — The answer given by NTA, but it seems to be incorrect. It starts with the goodwill (B), the final result, and ends with the average profit (C), which is the first figure needed; goodwill cannot be calculated before the super profit, average profit and normal profit are known.
Option (2) (C), (D), (A), (B) — Should be correct. Average profit first, then normal profit, then super profit as the difference, and goodwill last.

Advice for the exam: In the real exam, mark the answer that is correct as per accounting principles and the NCERT book. If NTA’s provisional answer key marks a different option, challenge it during the answer-key challenge window, giving proper reasoning. NTA does revise its key when a challenge is well justified, so a sound challenge can raise your marks.

NCERT (2026-27 edition):
Super Profits Method – “… 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.”