Question : Under average profit methods goodwill is calculated as
Option 1: Super profit x No. of years purchases
Option 2: Average profit X No. of years purchases
Option 3: Capital employed X No. of years purchases
Option 4: Super profit/expected rate of return
Correct Answer: Average profit X No. of years purchases
Solution : Answer = Average profit X No. of years purchases
Under the average profit method, goodwill is calculated by multiplying the average profit of the business by the number of years of purchases. This method estimates goodwill based on the average earnings over a certain period, providing a more stable basis for valuation compared to relying solely on super profits or capital employed.
Hence, the correct option is 2.
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