Which among the following is not the method of valuation of goodwill?

The correct answer is Option (3) → Normal Profit Method

The methods used to value the goodwill of a partnership firm are the average profits method, the super profits method and the capitalisation method. Normal profit is not a method of its own: it is the return a firm should earn on its capital at the normal rate, worked out as one stage of the super profits and capitalisation of super profits methods.

Option (1) Capitalisation Method — A method of valuation of goodwill. Goodwill is found by capitalising the average or super profits at the normal rate of return.

Option (2) Super Profit Method — A method of valuation of goodwill. Goodwill is the super profit (average profit less normal profit) multiplied by the years’ purchase.

Option (4) Average Profit Method — A method of valuation of goodwill. Goodwill is the average profit of past years multiplied by the agreed number of years’ purchase.