Arrange the following steps which involve the Super Profits Method of valuation of goodwill in the correct sequence:(A) Calculate the average profit.(B) Calculate the normal profit on the firm's capital on the basis of the normal rate of return.(C) Calculate goodwill by multiplying the super profits by the given number of years' purchase(D) Calculate the super profits by deducting normal profit from the average profits.Choose the correct answer from the options given below:
- A(A), (B), (C), (D)
- B(B), (A), (C), (D)
- C(A), (B), (D), (C)
- D(C), (B), (D), (A)
Solution & Step-by-step Explanation
Under the Super Profits Method, valuation follows these steps:Step 1 (A): Calculate the actual average profit earned by the firm.Step 2 (B): Calculate the normal profit based on capital employed and normal rate of return ().Step 3 (D): Find Super Profit by subtracting Normal Profit from Average Profit ().Step 4 (C): Compute Goodwill ().Hence, the sequence is (A), (B), (D), (C).