Goodwill may be classified into acquired goodwill or self-generated goodwill.
(i) Acquired or purchased goodwill:
(1) Goodwill acquired by making payment in cash or kind is called acquired or purchased goodwill.
(2) The excess of purchase consideration over the value of net assets acquired is treated as acquired goodwill.
(ii) Self - generated goodwill:
It is the goodwill which is self generated by a firm based on features of the business such as favourable location, local customers, etc. Such self-generated goodwill cannot be recorded in the books of accounts.

Following are the circumstances that require valuation of goodwill of partnership firms in order to protects the rights of the partners
(i) When there is a change in the profit sharing ratio
(ii) When a new partner is admitted into a firm
(iii) When an existing partner retires from the firm or when a partner dies.
(iv) When a partnership firm is dissolved

(i) Under this method, goodwill is the excess of capitalised value of average profit of the business over the actual capital employed in the business.
Goodwill = Total capitalised value of the business - Actual capital employed
(ii) The total capitalised value of the business is calculated by capitalising the average profits on the basis of the normal rate of return.
Capitalised value of the business 
\(=\frac{Average\ profit}{Normal\ rate of\ return}\times 100\)
(iii) Actual capital employed = Fixed assets (excluding goodwill ) + Current assets - Current liabilities

a. Purchase of super profit method.
Goodwill is calculated by multiplying the super profit by a certain number of years of purchase.
Goodwill Super profit \(\times\) No. of years of purchase.
b. Annuity method: value of Goodwill is calculated by multiplying the super profit with the present of Value of annuity.
Goodwill super profit \(\times\) Present value annuity factor.
c. Capitalisation of super profit method:
Goodwill = \(\frac{Super\ profit}{ Normal\ rate\ of\ return} \times 100\)

Tutorial note: Over valuation of closing stock in 2017 will result in over valuation of opening stock in 2018.
Average profit = \(\frac { Total\ profit }{ Number\ of\ year } \)
= \(\frac { 41,000+34,000+60,000 }{ 3 } \)
= \(\frac { 1,35,000 }{ 3 } \) = Rs. 42,000
Goodwill = Average profit \(\times\) Number of years of purchase
= 45,000 × 2
= Rs. 90,000

Average profit = \(\frac { Total\quad profit }{ Number\quad ofyear } \)
= \(\frac { 40,000+50,000+48,000+46,000 }{ 4 } \)
= \(\frac { 1,84,000 }{ 4 } \)
= Rs. 46,000

Goodwill = Average profit \(\times\) Number of years of purchase
= 40,000 \(\times\) 3 = Rs. 1,20,000

The monopoly condition or limited competition enables the concern to earn high profits which leads to higher value of goodwill

If the firm enjoys good reputations for its product's quality, there will be higher sales and the value of its goodwill will increase.

Goodwill cannot be seen and touched. It is invisible. Hence it is treated as intangible asset. But it is not a fictitious asset because goodwill has a value and it can be purchased or sold with any other asset.

Average profit = \(\frac{Total \ profit}{Number\ of\ years}\)
Average profit = \(\frac{8,000+10,000+9,000}{3}\)
Average profit: Rs. 9,000

Goodwill is the good name or reputation of the business which brings benefit to the business. It enables the business to earn more profit. It is the present value of a firm's future excess earnings. It is an intangible asset as it has no physical existence.

Weighted average profit = \(\frac { Total\ of\ weighted\ profits }{ Total\ of\ weights } \)
=\(\frac { 2,48,000 }{ 10 } \)=Rs.24,800
Goodwill = Weighted average profit × Number of years of purchase
= 24,800 x 3 = Rs.74,400

Weighted average profit \(=\frac{Total\ of\ weighted\ profits}{Total\ of\ weights}\)
\(=\frac{4,96,000}{10}=Rs.49,600\)
Goodwill = Weighted average profit x Number of years of purchase
= 49,600 x 3 = Rs. 1,48,800

Average profit \(=\frac{Total\ profit}{Number\ of\ years}\)
\(=\frac{20,500+17,000+30,000}{3}\)
\(\frac{67,500}{3}\)
Average profit =Rs. 22,500
Goodwill =Average profitxNumber of years of purchase
=22,500x2=2=45,000
[Note: Over valuation of closing stock in 2017 will result in over valuation of opening stock in 2018]

Average profit = \(\frac { Total\ profit }{ Number\ of\ year } \)
=\(\frac { 62,000+61,000+63,000 }{ 3 } \)
= \(\frac { 1,86,000 }{ 3 } \)
= Rs. 62,000
Normal profit = Capital employed \(\times\) Normal rate of return
= 4,00,000 \(\times\) 10%
= Rs. 40,000
Super profit = Average profit - Normal profit
= 62,000 – 40,000
= Rs. 22,000
Goodwill = \(\frac { Super\ profit }{ Normal\ rate\ of\ return } \) \(\times\)100
= \(\frac { 22,000 }{ 10 } \) \(\times\) 100
= Rs. 2,20,000