Question

While calculating Goodwill under super profit method, the sequence is followed as :
(A) Calculation of Super profit
(B) Calculation of Capital Employed
(C) Calculation of Normal profit
(D) Calculation of Average profit
(E) Calculation of Goodwill
Choose the correct answer from the options given below :

• A. (D), (C), (A), (B), (E)
• B. (D), (B), (C), (A), (E)
• C. (D), (A), (C), (B), (E)
• D. (D), (C), (B), (A), (E)

Hint:

Follow every steps one by one to correctly valuate goodwill at any time, otherwise you might commit errors.

Answer 1

The Correct Option is B

The Correct Sequence for Goodwill Valuation Under the Super Profit Method
Understanding the Super Profit Method: The super profit method calculates goodwill based on the excess profit earned by a business compared to the normal profit.
Step 1: Calculate Average Profit First, you must determine the average profit from the previous few years (D).
Step 2: Calculate Capital Employed Capital Employed is identified to be able to identify normal profits (B).
Step 3: Calculate Normal Profit With Capital Employed now one can easily apply normal rate of returns to identify profits for reference(C)
Step 4: Calculation of Super Profit Then calculate the excess of average profit over normal profit to identify the difference (A).
Step 5: Calculation of Goodwill Finally, after everything that we calculated, Goodwill value is calculated. (E)
Therefore, the correct chronological flow would be (D), (B), (C), (A), (E).