Arrange Steps For Capitalisation of Super Profits:

(A) Calculate average profit for the past years, as specified.

(B) Calculate the capital of the firm.

(C) Calculate normal profits on 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:

The Capitalisation of Super Profits Method follows a specific logical sequence:

(B) Calculate the capital of the firm

The starting point is determining the capital employed in the business. This is the base for further calculations.

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(C) Calculate normal profits on capital employed

Using the formula: Normal Profit = Capital Employed × (Normal Rate of Return/100)

This gives the expected profit that should be earned on the given capital.

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(A) Calculate average profit for the past years, as specified

The actual profits earned by the firm over past years are averaged to determine the maintainable profit level.

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

Super Profit = Average Profit - Normal Profit

This represents the excess earning capacity of the firm above normal expectations.

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(D) Multiply the super profits with the required rate of return multiplier

Capitalised Value of Super Profit = Super Profit × (100/Normal Rate of Return)

This converts super profits into a capital value, which represents the goodwill of the firm.

The sequence (B), (C), (A), (E), (D) ensures each step builds logically on the previous one - we need capital before calculating normal profit, both normal and average profits before finding super profit, and finally super profit before capitalising it.