(1) Average profit basis : Average Profit = Total profit/Number of years
Goodwill = Average Profit x No. of Years’ purchased
The profits taken into consideration are adjusted with abnormal losses, abnormal gains, return on non-trade investments and errors.
(2) Super profit basis :
Calculate Capital Employed
Assets …….
Less: Liability …….
Capital Employed ……..
(3) Annuity basis :
Goodwill=Super Profit x Annuity Number
(4) Capitalization basis:
Goodwill = Super Profit / Normal Rate of Return