Methods of Valuation of Goodwill - Valuation of Goodwill & Shares
Methods of Valuation of Goodwill:
- Capitalisation Method
- Super Profits Method
- Annuity Method

Capitalisation Method
The capitalisation method is a widely used method for valuing goodwill. It involves determining the average profits of the business over a certain period and then applying a suitable rate of capitalisation to arrive at the value of goodwill.

Super Profits Method
The super profits method takes into account the normal profits that a business can generate and deducts these from the actual profits earned. The difference, which is termed as super profits, is then capitalised to determine the value of goodwill.

Annuity Method
The annuity method calculates the present value of future profits that can be generated by the business. This present value is then considered as the value of goodwill.

Valuation of Goodwill & Shares
Valuation of goodwill and shares is crucial for businesses as it helps in determining the true worth of the business. Goodwill is an intangible asset that represents the reputation, brand value, and customer base of the business. Shares, on the other hand, represent the ownership in a company.
In advanced corporate accounting, various techniques such as discounted cash flow method, price-earning ratio method, and asset-based valuation method are used to value goodwill and shares accurately.
In conclusion, understanding the methods of valuation of goodwill and shares is essential for businesses to make informed decisions regarding mergers, acquisitions, and financial transactions.