Which is not a method of valuation of goodwill

The main methods of valuation of goodwill recognized under accounting are:

Average Profit Method - Goodwill is calculated as:

$\text{Goodwill} = \text{Average Profit} \times \text{Number of Years' Purchase}$

Super Profit Method - Goodwill is based on excess profits over normal profits:

$\text{Super Profit} = \text{Average Profit} - \text{Normal Profit}$

$\text{Goodwill} = \text{Super Profit} \times \text{Number of Years' Purchase}$

Capitalization Method - This includes two approaches:

• Capitalization of Average Profit
• Capitalization of Super Profit

Both use the concept of capitalizing profits at a normal rate of return.

Adjusted Profit Method is not a method of valuation of goodwill. It is actually a preliminary step in the goodwill calculation process where past profits are adjusted for:

• Abnormal gains or losses
• Non-recurring items
• Changes in accounting policies
• Non-business income/expenses

These adjustments help arrive at maintainable or normal profits, which are then used in the actual valuation methods mentioned above. Since it's a preparatory process rather than a valuation method itself, Option 2 is correct.