Q.Which of the following is true ?

This method values goodwill only on the portion of a firm's profit that exceeds what a similar firm would normally earn on the same capital. First, Normal Profit = Capital Employed × Normal Rate of Return, where Capital Employed is the net capital actually invested in the business (total trading assets excluding goodwill/fictitious assets, minus outside liabilities) and the Normal Rate of Return is the rate similar firms in the same industry and risk category normally earn. Then, Super Profit = Average Profit − Normal Profit. Finally, Goodwill = Super Profit × Number of Years' Purchase. Where average profit needs correcting for an item not yet charged against it — …