Which of the following is NOT a method of valuation of goodwill?

The correct answer is Option (4) → Average super profit capitalization method

Goodwill is valued by three methods: the average profits method, the super profits method and the capitalisation method. The capitalisation method itself works in two ways — capitalising the average profits or capitalising the super profits. No method mixes the two into an "average super profit capitalisation"; the option joins words from different methods.

Option (1) Average profit method — A method of valuing goodwill. Goodwill = average profit of past years × agreed number of years' purchase.

Option (2) Super profits method — A method of valuing goodwill. Goodwill = (average profit − normal profit) × number of years' purchase.

Option (3) Capitalisation method — A method of valuing goodwill. Goodwill = capitalised value of average profits less actual capital employed, or super profit × 100 / normal rate of return.