Various methods are used for the valuation of goodwill of a partnership firm. Which of the following is not the method of valuation of goodwill?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Purchased Method
Goodwill of a partnership firm is valued by one of three methods, each built on the firm’s profits.
Option (1) Average profit Method — A method of valuation. Goodwill is the average profit of past years multiplied by an agreed number of years’ purchase.
Option (2) Super profit Method — A method of valuation. Goodwill is the profit earned above the normal profit, multiplied by the number of years’ purchase.
Option (4) Capitalisation Method — A method of valuation. The average or super profit is capitalised at the normal rate of return to arrive at goodwill.
There is no “Purchased Method”. The nearest idea is purchased goodwill, which is goodwill the business has paid for when buying another business; it is a kind of goodwill, not a way of valuing it.
NCERT (2026-27 edition):
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