Question by CA (Dr.) G.S.GREWAL, Series – 3

Valuation of Goodwill

Fill in the Blank

  1. Goodwill is valued with a purpose to compensate ________________ partner(s) by the ________________ partners.

True / False

  1. Large Customer base results in higher valuation of Goodwill.

Multiple Choice Question

  1. Which of the following statement is Correct?

(a)    Goodwill is a fictitious asset.

(b)    Goodwill is a current asset.

(c)    Goodwill is a wasting asset.

(d)    Goodwill is an intangible asset.

Answer – Question by CA (Dr.) G.S.GREWAL, Series – 3

Fill in the Blank

  1. Sacrificing, Gaining

True / False

  1. True

Reason If a customer is large in size then they demand more of good and ultimately goodwill of that product increases.

Multiple Choice Questions: –

  1. (d)

Reason Goodwill is an intangible asset as it cannot be seen or touched but has a value.

Question by CA (Dr.) G.S.GREWAL, Series – 6

Valuation of Goodwill

True/False

  1. Two factors affecting goodwill are efficient management, repeated customers leading to higher sales and profit thus; it leads to higher value of goodwill.

Fill in the Blank

  1. A firm earns profit of ₹ 1,10,000. The Normal Rate of Return is 10% on Capital.  Assets of the firm are ₹ 11,00,000 and Liabilities ₹ 1,00,000. Value of Goodwill by Capitalisation of Average Profit will be _____________________.

Multiple Choice Question

  1. In the event of firm’s business being taken over, the amount paid in excess of net assets (Assets – Liabilities) is debited to

(a)    Profit and Loss Account

(b)    Capital Accounts

(c)    Reserve Account

(d)    Goodwill Account.

Answer – Question by CA (Dr.) G.S.GREWAL, Series – 6

True/False

  1. True

Reason: Management if efficient leads to higher profits and thus, increase in the value of Goodwill. Similarly repeated Customer’s leads to increased sale and thus higher profits increase in value of Goodwill.

Fill in the Blank

  1. ₹ 1,00,000

Multiple Choice Questions: –

  1. (d)

Reason: Amount paid in excess of net assets is not on account of any asset but for acquiring a running business and in effect to earn profit from the day the business is taken over. Hence it is debited to Goodwill Account.

Question by CA (Dr.) G.S.GREWAL, Series – 13

Valuation of Goodwill

True / False

  1. Weighted Average Method of calculating goodwill is useful when Profits are similar in all the years

Fill in the Blank

  1. Goodwill is not valued by the firm at the time of  ___________.

Multiple Choice Question

  1. Capital employed by a 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 profits is
  2. ₹50,000
  3. ₹10,000
  4. ₹6,000
  5. ₹56,000

Answer – Question by CA (Dr.) G.S.GREWAL, Series – 13

True/False

  1. False

Reason: Weighted Average Method of calculating goodwill is used when profit shows a trend because profits of latest years indicate the profit the firm is likely to earn in coming years.

Fill in the Blank

  1. Dissolution of firm

Multiple Choice Questions

  1. (b)

Reason: Capital Employed = ₹5,00,000

Average Profit = ₹60,000

Normal Profit = Capital Employed × NRR/100

= ₹5,00,000 × 10/100

= ₹50,000

Super Profit = Average Profit – Normal Profit

= ₹60,000 – ₹50,000

= ₹10,000.

Question by CA (Dr.) G.S.GREWAL, Series – 16

Valuation of Goodwill

True / False

  1. As per Accounting Standard – 26, Both purchased and self-generated goodwill are accounted in the books of accounts.

Fill in the Blank

  1. 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 ______________.

Multiple Choice Question

  1. Average profit of a business over the last five years was ₹60,000. The normal  yield on capital invested in such a business is estimated at 10% p.a. The net capital invested in the business is ₹5,00,000. Amount of goodwill, if it is based on 3 years purchase of last 5 years super profits will be :
  2. ₹1,00,000
  3. ₹1,80,000
  4. ₹30,000
  5. ₹1,50,000

Answer – Question by CA (Dr.) G.S.GREWAL Series – 16

True/False

  1. False

Reason: According to AS-26 only purchased goodwill is accounted in the books of account. Self-generated goodwill is not accounted as its value is subjective in nature.

Fill in the Blank

  1. ₹ 10,000

Multiple Choice Question

  1. (c)

Reason: – Average Profit = ₹60,000

Normal Profit = Capital Employed × NRR/100

= ₹5,00,000 × 10/100

= ₹50,000

Super Profit = Average Profit – Normal Profit

=₹10,000

Goodwill = Super Profit × Number of year’s purchase

= ₹10,000 × 3

= ₹30,000

Question by CA (Dr.) G.S.GREWAL, Series – 35

Valuation of Goodwill

True/False

  1. Total Capital employed in the firm is ₹8,00,000, Normal Rate of Return is 15% and profit for the year is ₹1,20,000.Value of goodwill as per Capitalization Method would be ₹4,20,000.

Fill in the Blank

  1. Capital invested in a firm is ₹ 5,00,000. Normal Rate of Return is 10%. Average profits of the firm are ₹ 64,000 (after abnormal loss of ₹ 4,000). Value of Goodwill at four years purchase of Super Profits will be _____________.

Multiple Choice Question

  1. Profit earned over the last 5 years are as follows: ₹60,000; ₹65,000 ₹70,000 ₹90,000 and ₹ 10,000 (loss). Based on 2 years purchase of the last 5 years profits, value of Goodwill will be:
  2. ₹23,600
  3. ₹22,000
  4. ₹1,10,000
  5. ₹1,18,000

Answer – Question by CA (Dr.) G.S.GREWAL, Series – 35

True/False

  1.  False

Reason: Capitalised value of the business=(Average Profit ×100)/NRR

=(₹1,20,000 ×100)/15

= ₹8,00,000

Capital employed = ₹8,00,000

Goodwill = ₹8,00,000 – ₹8,00,000

= Nil

Fill in the Blank

  1. ₹ 72,000

Multiple Choice Question

  1. (c)

Reason: –

Average Profit=(₹60,000+₹65,000+₹70,000+₹90,000-₹10,000)/5

Average Profit = ₹55,000

Goodwill = Average Profit × Numbers of year’s purchase

= ₹55,000 × 2

Goodwill = ₹1,10,000

 

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