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Question

Which method is useful when the actual profit is less than normal profit?

A
Super profit method
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B
Capitalisation method
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C
Average profit method
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D
Premium method
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Solution

The correct option is D Capitalisation method
Capitalization method is a method of determining the value of a firm by calculating the net present value of expected future profits or cash flows of the firm. It is used when the actual profits of the firm is less than the normal profits.

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