The steps involved under calculation of goodwill using Super Profit method are following. Arrange them in the correct order.
A. Calculate the normal profit on the firm's capital on the basis of the normal rate of return.
B. Calculate the super profits by deducting normal profit from the average profits.
C. Calculate goodwill by multiplying the super profits by the given number of years' purchase.
D. Calculate the average profit.
Choose the correct answer from the options given below.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → D, A, B, C
Under the super profit method, goodwill is worked out in four steps, in this order:
D. Calculate the average profit.
A. Calculate the normal profit on the firm’s capital on the basis of the normal rate of return.
B. Calculate the super profits by deducting normal profit from the average profits.
C. Calculate goodwill by multiplying the super profits by the given number of years’ purchase.
NCERT (2026-27 edition):
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