Read the following information and answer the following question.

A and B are partners sharing profits equally. Average capital employed of the firm is ₹10,00,000. The normal rate of return is 11%. Salary to each partner for his service to be treated as a charge on profit- 30,000 per year. The asset of the firm excluding goodwill is 11,00,000 and liabilities 1,00,000. The profit of the firm is as follows-
₹1,60,000(2016)
₹1,40,000(2017)
₹2,70,000(2018)

Which of the following is not a method of calculating goodwill?

Calculated profit Method

The correct answer is option  3- Calculated profit Method.

Calculated profit Method is not a method of calculating goodwill.

Goodwill is an intangible asset it is very difficult to accurately calculate its value. Various methods have been advocated for the valuation of goodwill of a partnership firm. Goodwill calculated by one method may differ from the goodwill calculated by another method. Hence, the method by which goodwill is to be calculated, may be specifically decided between the existing partners and the incoming partner. The important methods of valuation of goodwill are as follows:

1. Average Profits Method

• Simple average profit
• Weighted average profit

2. Super Profits Method

3. Capitalisation Method

• Capitalisation of Average Profits
• Capitalisation of Super Profits