Identify the steps involved in calculating goodwill under the capitalization of super profits method:

(A) Calculate capital of the firm, which is equal to total assets (excluding goodwill and fictitious assets) minus outside liabilities

(B) Multiply the super profits by the required rate of return multiplier

(C) Calculate normal profits on capital employed

(D) Calculate super profits by deducting normal profits from average profits

(E) Calculate average profit for past years

Choose the correct answer from the options given below:

The capitalization of super profits method follows this logical sequence:

(A) Calculate capital employed = Total Assets (excluding goodwill and fictitious assets) - Outside Liabilities

This gives us the capital on which normal profits should be earned.

(C) Calculate normal profits = Capital Employed × $\frac{Normal\ Rate\ of\ Return}{100}$

This represents the expected profits on the capital employed at the normal rate.

(E) Calculate average profits from past years

Average Profits = $\frac{Sum\ of\ Profits\ of\ Past\ Years}{Number\ of\ Years}$

(D) Calculate super profits = Average Profits - Normal Profits

Super profits represent the excess earnings above normal expectations.

(B) Capitalize super profits to find goodwill

Goodwill = Super Profits × $\frac{100}{Normal\ Rate\ of\ Return}$

The capitalization factor (multiplier) = $\frac{100}{Normal\ Rate\ of\ Return}$

---

Note that steps (A), (C), and (E) involve independent calculations that can be performed simultaneously. However, step (D) requires completion of both (C) and (E), and step (B) requires completion of (D). The sequence A, C, E, D, B represents a systematic approach where capital employed and normal profits are established before comparing them with actual average profits to determine super profits.