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Inventory Turnover Ratio

The formula o...

Question

The formula of average profit method is __________.

\frac{T o t a l P r o f i t s}{N o . o f y e a r s}

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Super Profit

-

Normal Profit

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Super Profit

\times

No. of years

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\frac{S u p e r p r o f i t}{N o r m a l p r o f i t}

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Solution

The correct option is A $\frac{T o t a l P r o f i t s}{N o . o f y e a r s}$
Average profit method is the simplest and the most commonly used method of the valuation of goodwill. Under this method, goodwill is calculated on the basis of calculating of average of profits of the firm in past years.

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