Arrange the following steps for calculating Goodwill under Capitalisation of Average Profits Method in correct sequence-(A) Ascertain the actual firm's capital (net assets) by deducting outside liabilities from the total assets.(B) Compute the value of goodwill by deducting net assets from the capitalised value of average profits.(C) Ascertain the average profits based on the past few years' performance.(D) Capitalize the average profits on the basis of the normal rate of return to ascertain the capitalised value of average profits.Choose the correct answer from the options given below:
- A(D), (B), (C), (A)
- B(B), (C), (D), (A)
- C(B), (A), (D), (C)
- D(C), (D), (A), (B)
Solution & Step-by-step Explanation
The process of computing goodwill using Capitalisation of Average Profits involves the following logical steps:Step 1 (C): Ascertain average maintenance profits from past financials.Step 2 (D): Compute Capitalised Value of Average Profits via .Step 3 (A): Calculate actual Net Assets ().Step 4 (B): Deduct Net Assets from the Capitalised Value to find Goodwill.Hence, the right order is (C), (D), (A), (B).