Arrange the steps for valuing goodwill via the Capitalisation of Super Profits Method in the correct logical sequence:(A) Calculate the average profit for the past years, as specified.(B) Calculate the capital employed of the firm.(C) Calculate normal profits on the capital employed.(D) Multiply the super profits with the required rate of return multiplier .(E) Calculate super profits by deducting normal profits from average profits.Choose the correct answer from the options given below:
- A(A), (E), (B), (C), (D)
- B(A), (C), (B), (E), (D)
- C(B), (E), (A), (D), (C)
- D(B), (C), (A), (E), (D)
Solution & Step-by-step Explanation
To find the value of goodwill under this method, follow these chronological steps:Find Capital Employed (B): Determine the net capital base of the business.Calculate Normal Profits (C): Multiply Capital Employed by the Normal Rate of Return.Calculate Average actual Profit (A): Compute the average historical earnings.Calculate Super Profits (E): Find the surplus by subtracting Normal Profit from Average Profit ().Capitalize Super Profit (D): Apply the formula .Thus, the proper sequence is (B), (C), (A), (E), (D).