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Term 1 Practice questions for Accounts 2021-22
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0% found this document useful (0 votes)
368 views11 pagesGoodwill T. S
Term 1 Practice questions for Accounts 2021-22
Uploaded by
Aryan VermaCopyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
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/ 11
varcofeyey THis Ue) VALUATION
Multiple Choice Questions (MCQs)
Select the correct alternative:
firm measured in terms of its future earning capacity is known,
E
© Goodwill.
@ Economic Value.
1. Money value of the reputation of a
@ Trade mark.
© Brand Value.
2. Anasset which is not fictitious but intangible in nature, having realisable value is known as
® Building. © Machinery.
© Goodwill. @ Vehicle.
3. Identify the correct statement of the following:
® Goodwill is a current asset.
@® Goodwill is a fictitious asset.
© Goodwill is a wasting asset.
4, Excess amount that a firm gets over and above the net assets at the time of sale of business is
©® Profit. @® Super Profit.
© Reserve. @ Goodwill.
5. When Goodwill is not a purchased goodwill, Goodwill
@ is not recognised in the books of account.
© is recognised in the books of account.
© may or may not be recognised in the books of account.
@ is partly recognised in the books of account.
6. Weighted Average Profit Method of calculating goodwill is useful when
@® Profits are not similar over the years and are fluctuating.
® Profits show a rising or falling trend.
© Profits are higher in one year and lower in another.
@ Profits are similar in all the years.
7. Following factors affect the value of goodwill except
@ Nature of Business.
© Technical Know-how.
@© Goodwill is an intangible asset.
© The form of business entity.
@ Efficiency of Management.
8. Goodwill is valued at the time of,
@ Change in Profit-sharing Ratio. © Retirement/death of a Partner.
© Admission of a new partner. @ Allof these.
9. Under average profit basis, Goodwill is calculated as:
@® Super Profit x No. of years’ purchase.
© Average Profit x No. of years’ purchase.
© Total of the discounted value of expected future profits.
@® Super profit divided by expected rate of return. Multiple Choice Questions Mco.s
10, The term ‘Number of Years’ Purchase’ means
@ The number of years durin
19 Which th a 0 at the profit due to
avodvil are key to anne he purchaser of Goodwill expects that the profit due to
in future,
@ Number of years in which goodwill is purch
© Number of years for which goodwill puch
@ None of the above,
ased,
‘ased will not help the firm In earning similar profits.
11. Raj & Associates is a partnership firm, j
Intends to value its Goodwill. Average profit for the past 5 years
is€1,50,000, and Goodwill is bein ‘ sts nee
'9 Valued at 3 years’ purchase of average profit, value of Goodwill of the
firm will be
% 4,50,000,
® eae ® 150,000.
© €3.00,000. @ % 600,000,
12. Mona,
Reena and Sona are carrying on business in Partnership. Goodwill of the firm is to be valued at
3 years Purchase of average profits of last 5 years, Profit of las 5 years are given below:
Year 1 Year 2 Year 3 Year 4 Year 5
316,000 315,000 % 8,000) 7,000 % 10,000
Goodwill of the firm will be
@® % 24000. © 33,600.
© 30,000, @© None of these.
13. Following were the profits of a firm for the last 3 years:
Year Profit &)
2019-20 3,00,000 (including abnormal gain of & 90,000)
2020-21 2,40,000 (after charging abnormal oss of & 1,20,000)
2021-22 3,60,000 (excluding & 1,20,000 payable on the insurance of machinery)
Goodwill of the firm on the basis of 4 years’ purchase of the average profit for the last 3 years will be
@® 7%12,00,000. ® % 10,880,000.
© 7 12,80,000. @ None of these.
14. Super Profit means
@ Average Profit - Normal Profit. ® Weighted Profit + Number of Weights.
© Total Profit + Number of Years. @ None of these.
15. Capital employed by a partnership firm is € 5,00,000. Its average profit is € 60,000. The normal rate of return
in similar type of business is 10%. The amount of Super Profit is
@® %50,000. ® F 10000.
© % 6,000. @ %56,000.
16. Under Super Profit Method, goodwill is calculated by:
@® Number of years’ Purchase x Average Profit. (@) Number of years’ Purchase x Super Profit.
© Super Profit + Normal Rate of Return. @ Super Profit - Normal Profit, i. I
An Aid to Acconntancy cys,
YU,
McQ.24
ars is € 60,000, Normal yleld on capital investe
fit of a business over the last five years 1 su
eee ee ert 108 pa. Capltal Invested In the business ls &5,00,000. Amount of good yi ite
based on 3 years’ purchase of ast 5 years super profits will be h
® %1,80,000.
® 7 1,00,000.
© % 30,000. @ 7 150,000.
18. Net Profits during the last three years of a firm are: \ :
Year '
Profit @%) 18,000 20,000 22,000
Capital investment ofthe fim is ¥ 60,000, Normal Rate of Return is 10%. Value of Goodwill on the by,
three years’ purchase of the Super Profit for the last three years will be
® 21,000. ® % 42,000.
© 84,000. @ 20,000.
19. M/s. Supertech India has assets of 5,00,000, whereas Liabilities are: Partners’ Capitals—€ 3,50,000, Gene
Reserve—% 60,000 and Sundry Creditors—¥ 90,000. If Normal Rate of Return is 10% and Goodwill of,
firm is valued at € 90,000 at 2 years’ purchase of Super Profit, the Average Profit of the firm willbe
® % 46,000. ® 86,000.
© = 163,000. @® % 23,000.
‘Average Capital Employed of a firm is & 4,00,000 and the Normal Rate of Return is 15%. Average profits
the firm is & 80,000 per annum. If management cost is estimated at & 10,000 per annum, then on the bas,
of two years’ purchase of Super Profit, value of Goodwill will be
® 710,000. ® 720,000.
© 60,000. @ 80,000.
Net assets of a firm including fictitious assets of & 5,000 are & 85,000. Net liabilities of the firm ar
20.
21.
% 30,000. Normal Rate of Return is 10% and the Average Profit of the firm is € 8,000. Value of goodwill
per Capitalisation of Super Profit Method will be
® % 20,000. ® % 30,000.
© 725,000. @© % 15,000.
22. Total Capital employed in the firm is ® 8,00,000, Normal Rate of Return is 15% and profit for the year s
% 1,20,000. Value of goodwill as per Capitalisation Method would be
@® %8,20,000. ® %1,20,000,
© Nil @© = 4,20,000.
23. A firm earns profit of € 1,10,000. Normal Rate of Return is 10%. Assets of the firm are % 11,00,000 and
liabilities € 1,00,000. Value of goodwill by Capitalisation of Average Profit will be
® 200,000. ® % 10000.
© %5,000. @© %1,00,000.
24. A firm earned ® 60,000 as profit, the normal rate of return being 10%. Assets of the firm are & 7,2000
(excluding goodwill) and Liabilities are & 2,40,000. Find the value of Goodwill by Capitalisation of Aver®%
Profit Method. »
@® %2,40,000 ® 7 180,000
© %1,20,000 @© 60,000
25. Tangible Assets of the firm are % 14,00,000 and outside liabilities are % 4,00,000, Profit of the fim ®
%1,50,000 and normal rate of return is 10%. The amount of capital employed will be
@® 7 10,00,000 © 7 1,00,000
© % 50,000 @® % 20,000 (cose 20" |
multiple Choice Questions
36. Average Profit of the firm is & 6
MCQ.25
: ,00,000. Total tangible Assets in the firm are % 28,00,000 and Outside
rele type of business, the normal rate of return Is 20% of the capital
‘90odwill by Capitalisation of Super Profit Method.
Liabilities are & 8,00,000. in th
employed. Calculate the value
@® #10,00,000
© ¥ 250,000 ® %5,00,000
@ %15,00,000
1. Ram and Prem are part ’
Fr et nets Maret business, Balances in Capital and Current Accounts as on 31st March,
f Capital Account ®) Current Account @)
ben 2,00,000 50,000
em
: 2,40,000 10,000 (Or)
The fim earned an average profit of € 90,000. the normal rate of returns 10% find the value of Goodwill
by Capitalisation of Average Profits,
@® 7 4,20,000.
® 210,000.
© %1,10,000.
@® & 220,000.
28, Capital Employed in a firm is calculated from Liabilities Side Approach as follows:
@ Partners’ Capital - Credit balance in Current Account + Free Reserves + Credit Balance of
Profit and Loss Account (if any) ~ Goodwill ~ Non-Trade Investments - Fictious Assets ~ All
Outside Liabilities.
© Partners’ Capital + Credit Balance in Current Accounts (or ~ Debit balance of Current Accounts)
+ Free Reserves + Credit Balance of Profit and Loss Account (if any) ~ Goodwill ~ Non-Trade
Investments - Fictious Assets
© Partners’ Capital - Credit Balance in Current Accounts + Free Reserves + Credit Balance of
Profit and Loss Account (if any) - Goodwill - Non-Trade Investments Fictious Assets - All
Outside Liabilities.
@ All Assets - Goodwill - Non-Trade Investments - Fictious Assets ~ Debit Balance in Profit and
Loss Account - All Outside Liabilities.
29, Capital Employed in a firm is calculated from Assets Side Approach as follows:
@ All Assets - Goodwill - Non-Trade Investments - Fictious Assets - Long-term Outside Liabilities.
© All Assets - Goodwill - Non-Trade Investments - Fictious Assets - Credit Balance in Current
Accounts ~ All Outside Liabilities.
© Partners’ Capital - Credit Balance in Current Accounts + Free Reserves + Credit Balance of
Profit and Loss Account (if any) ~ Goodwill - Non-Trade Investments ~ Fictious Assets ~ All
Outside Liabilities.
@ All Assets - Goodwill - Non-Trade Investments ~ Fictious Assets ~ Debit Balance in Profit and
Loss Account - Debit Balance in Current Account — All Outside Liabi
30. Information:
Capital Accounts of Partners Naresh and Vikesh—X 5,00,000 each; Balances in Current Accounts of
Naresh and Vikesh—% 50,000 and % 40,000 respectively; Bank Loan—€ 10,00,000; Goodwill ® 50,000;
Investments—z 25,000; Advertisement Suspense—X 15,000.
Based on the above information, Capital Employed for the purposes of valuation of Goodwill will be
® = 10,90,000. ® %10,75,000.
© ¥ 10,00,000. @© F 10,40,000, Ee. I
MCQ.26 An Add to Accountancy engy i;
i
31, Information:
Total of Assets side of the Balance Sheet 25,00,000, Debit Halances in Current Accounts of 4,
and Vikesh—R 75,000 and & 25,000 respectively; Bank Loan—t 14,00,000, Goodall 71,00 ¢¢9, 5.
Investments—t 25,000; Profit and Loss Account (Debit)—% 15,000.
al Employed for the purposes of valuation of Goodall ya be
® © 15,85,000.
@ 2 14.85,000.
Based on the above information, Capit
@® = 16,85,000,
© £17,85,000.
32, In valuation of Goodwill, Average profit is determined considering
@ Actual business profit for each year.
© Actual business profit for each year adjusting it for abnormal profits and losses, if any,
© Actual business profit for each year adjusting it for abnormal losses, if any.
@ Actual business profit for each year adjusting It for abnormal profits, if any.
Assertion-Reason Based Questions
Given below are two statements (in each question), one labelled as Assertion (A) and other labelled as Reason
1. Assertion (A): Goodwill is an intangible asset because of which an enterprises likely to earn higher profs
without putting extra efforts.
Reason (R): Goodwill is an intangible asset as it exists but does not have a physical existence. Also,
an enterprise enjoys goodwill, it will have repeated customers and will also attract more
rease and thus the profits.
customers due to which sales
In the context of above two statements, which of the following is correct?
Assertion A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
© Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A)
© Assertion (A) is correct but the Reason (R) is not correct.
@ Both Assertion (A) and Reason (R) are incorrect.
2. Assertion (A): Value of goodwill is subjective and not an exact value.
Reason (R}: Goodwill is based on accepted principles of valuation which are time tested. Hence, itisnot
subjective.
Inthe context of above two statements, which ofthe following is correct?
@ Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
@® Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (AL
© Assertion (A) is correct but the Reason (R) is not correct.
© Both Assertion (A) and Reason (R) are incorrect.
3. Assertion (A): Self-generated Goodwill is recognised in the books of account on reconstitution ofa fim
because amount is exchanged between the gaining partner or partners and sacrificing
partner or partners.
Reason (R): According to AS 26, Intangible Assets, Self-generated Goodwill is not recognised in the bo’
of accounts because the value is not paid for it,
In the context of above two statements, which of the following is correct?
@ Assertion (A) and Reason (R) are correct but the Reason (A) Is not the correct explanation
Assertion (A).
®© Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion A
© Both Assertion (A) and Reason (R) are not correct.
@© Assertion (A) is not correct but the Reason (R) is correct. multiple Choice Questions
MCQ.27
44, Assertion (A): Valuation of Goodwill is n
Ne
partners h, “cessary at the time of firm's reconstitution because gaining
ave to compensat
geason (R): Goodwill is an intan te the sacrificing partners for gaining profit share.
gible i "
ald for it asset which is recognised in the books of account if an amount is
e context of
Inth ‘above two statements, which of the following is correct?
@ Assertion (A) and Reason
“Assertion (A), (R) are correct but the Reason (R) Is not the correct explanation of
© Both Assertion (A) and R
Oo pares 'eason (R) are correct and Reason {(R) is the correct explanation of Assertion (A).
is correct but the Reason (R) is not correct.
@ Both Assertion (A) and Reason (R) are incorrect
5, Assertion (A): Goodwill is an i
coenls a intangible asset and is recognised as an asset only when consideration has
\ged hands between two willing and independent persons.
AS 26, Intangible Ass
" ets prescribes to recogni F
jasbeot hatdican
