Accountancy Part AAdmission of a Partner

Read following with regard to the methods of valuation of goodwill: (…

Read following with regard to the methods of valuation of goodwill:

(A) Average Profit Method
(B) Capitalisation of Average Profits
(C) Capitalisation of Normal Profits
(D) Super Profits Method
(E) Capitalisation of Super Profits

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → (A), (B), (D) and (E) only

The book names three methods of valuing goodwill: average profits, super profits and capitalisation. The capitalisation method itself works in two ways, by capitalising the average profits or by capitalising the super profits.

(A) Average Profit Method — True.
(B) Capitalisation of Average Profits — True.
(C) Capitalisation of Normal Profits — False. Normal profit is only a step used to find super profit; capitalising it is not a method of valuing goodwill.
(D) Super Profits Method — True.
(E) Capitalisation of Super Profits — True.

NCERT (2026-27 edition):
Methods of Valuation of Goodwill – “The important methods of valuation of goodwill are as follows: 1. Average Profits Method 2. Super Profits Method 3. Capitalisation Method …”

NCERT (2026-27 edition):
Capitalisation Method – “Under this method the goodwill can be calculated in two ways: (a) by capitalizing the average profits, or (b) by capitalising the super profits.”