Which of the following are methods of calculating goodwill? 1. Average profit method 2. Super profit method 3. Log method 4. Sum of years digit method 5. Capitalisation of average profit method 6. Capitalisation of super profit method 7. FIFO method Select the correct answer:

The correct answer is: A. 1, 2, 5 and 6.

Goodwill is an intangible asset that arises when a business is purchased for more than the fair value of its net assets. It is often referred to as the “goodwill and favorable reputation” of a business.

There are several methods that can be used to calculate goodwill, including:

• The average profit method: This method calculates goodwill by multiplying the average profit of the business by a certain number of years.
• The super profit method: This method calculates goodwill by multiplying the super profit of the business by a certain number of years. Super profit is the excess of the actual profit of the business over the normal profit that could be earned by a similar business in the same industry.
• The capitalisation of average profit method: This method calculates goodwill by dividing the average profit of the business by the capitalization rate. The capitalization rate is the rate of return that an investor would expect to earn on an investment in a similar business.
• The capitalisation of super profit method: This method calculates goodwill by dividing the super profit of the business by the capitalization rate.

The FIFO method is a method of inventory valuation that assumes that the first goods purchased are the first goods sold. This method is not used to calculate goodwill.

I hope this helps! Let me know if you have any other questions.