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1. Simple profit method

          Under this method, the goodwill is valued at agreed number of years purchase of the average profits of the past few years. Thus for calculating the value of goodwill the average profit of past few years is to be ascertain first (say three or four years). This avg profit is multiplied by an agreed number of years during which the anticipated profits are expected to accrue. The resultant figure is considered to be the value of Goodwill.

2. Weighted Average Profit method

         Under this method each years profit is multiplied by the respective number of weights i.e,1,2,3,4, etc., in order to find out value of product and the total of products is then divided by the total of weights in order to ascertain the weighted avg profits. Thereafter, the weighted avg  profit is multiplied by the agreed number to find out the value of goodwill.

            

           Weighted avg profit = Total of products of profits/Total of weights

            Goodwill = Weighted avg profit * Agreed number of years

3. Super Profit Method

         Super profit is the excess of actual avg profit of a firm over the normal earning on capital. Normal earning on capital is ascertained by multiplying capital employed with the normal rate of return enjoyed by similar firms. Steps involved in calculations are as follows:

a) Calculate the actual avg profit

b) Ascertain the normal earnings on capital employed.

        Normal earnings on capital = Capital employed * Normal rate of earnings/100

c) Ascertain the super profit:

       Super profit = Actual avg profit - Normal earnings on capital employed

d) Calculate goodwill by multiplying the super profit by the decided number of years.

4. Present Value of Super Profits

       To make the amount of super profit more meaningful and comparable, present value of super profit is computed. The goodwill is estimated as the present value of future super profits. We can determine the present value of super profit earned in future, the following steps are involved.

a) Calculate the future super profit for the next few years

b) Select the required rate of return

c) Calculate the present value of return

d) Multiplying present value factors with future super profits

e) The sum of product of present value factors and super profits is the value of goodwill

5. Capitalisation Method

     Under this method the avg profit is to be capitalised on the basis of normal rate. From the value so obtained the total of net tangible assets is subtracted to arrive at the value of goodwill. The steps involved for the computation of goodwill under this method are: 

a) Ascertain the avg profit of the past few years

b) Capitalise the avg profit on the basis of normal rate by following formula:

               Avg Profit *100/normal rate of return

c)Ascertain the net assets by deducting outside liabilities from the total value of assets (excluding goodwill)

d) Compute the value of goodwill by subtracting net Assets from the capitalised value of avg profit