For computing Goodwill by capitalisation of Average Profit method, the following sequence would be followed:A. Capitalise the average profit on the basis of Normal Rate of ReturnB. Ascertain the firm's Capital - Total Assets - Outside LiabilitiesC. Ascertain the average profits based on past years' performanceD. Compute the volume of GoodwillChoose the correct answer from the options given below:
- AB, C, A, D
- BC, A, B, D
- CA, B, C, D
- DA, C, B, D
Solution & Step-by-step Explanation
Sequence to calculate Goodwill using the Capitalisation of Average Profit method:Ascertain the average profits (C).Capitalise the average profit using the Normal Rate of Return to find the Total Capitalised Value of the firm (A).Ascertain the actual capital employed (Total Assets - Outside Liabilities) (B).Compute the volume of Goodwill (Capitalised Value - Actual Capital Employed) (D).Thus, C, A, B, D.