Under which method is the "Number of Years' Purchase" not considered for goodwill valuation?
- ASimple Average Method
- BWeighted Average Method
- CSuper Profit Method
- DCapitalization Method
Solution & Step-by-step Explanation
under the Capitalization Method, goodwill is evaluated by capitalizing either the average or super profits based on the normal rate of return. The formula used is:
or
Thus, the "Number of Years' Purchase" factor is entirely absent from its calculation, whereas Simple Average, Weighted Average, and Super Profit methods all rely directly on multiplying a calculated profit figure by the number of years' purchase.
or
Thus, the "Number of Years' Purchase" factor is entirely absent from its calculation, whereas Simple Average, Weighted Average, and Super Profit methods all rely directly on multiplying a calculated profit figure by the number of years' purchase.