Question

Explain various methods of valuation of goodwill.

Answer 1

Hi students! Here is your answer.

The various methods of valuation of goodwill are:

1. Average profit method:
Where goodwill = Average profit x No. of years’ purchase
Average Profit = Total profit of past given years / Number of years

2. Weight average method:
Total products of profits / Total of weights    

Answer 2

Answer:

In the annuity method, goodwill can be calculated by taking average super profit. ... Computation of the present value of this annuity is done by discounting it at the given rate of interest, i.e. on the normal rate of return. Valuation of goodwill is this discounted present value of the annuity.