CUET Commerce Mcq 2023 - {Valuation of Goodwill chapter 3 MCQ with Solution}

CHAPTER 3 : Valuation of Goodwill (ख्याति का मूल्यांकन)

Name of Exam : CUET UG 2023

SECTION : 2 Domain (commerce)

Subject: Accountancy

Chapter: valuation of Goodwill

Cuet commerce Domain MCQ Test 2023

(Q1) Nature of goodwill is

(a) intangible asset 

(b) fictitious asset

(c) long-term liability 

(d) current asset

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(Q2) Which of the following is/are method(s) of

valuation of goodwill?

(a) Average profit method 

(b) Super profit method

(c) Capitalisation method 

(d) All of these

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(Q3) Which of the following factor(s) affect goodwill?

(a) Nature of business

(b) Efficiency of management

(c) Location 

(d) All of these

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(Q4) Find out those situations which create need for valuation of goodwill for a partnership firm?

(a) When existing partners change their profit sharing

ratio

(b) When a new partner comes into partnership

(c) When an existing partner retires from partnership

(d) All of the above

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(Q5) Find out that goodwill which is accounted for, as per Accounting Standard 26.

(a) Purchased goodwill

(b) Self-generated goodwill 

(c) Both (a) and (b)

(d) Goodwill brought in by a partner

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(Q6) The profits for last 3 years were

1st year = Rs 6,000 (including abnormal gain

Rs 2,000)

2nd year = Rs 4,000 (after charging abnormal loss

Rs 3,000)

3rd year = Ra 2,500 (including abnormal income

Rs 1,500)

Calculate goodwill on the basis of 3 years’

purchase of last 3 years profits and losses.

(a) Rs  12,500 

(b) Rs 12,000

(c) Rs 13,000 

(d) Rs 16,000

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(Q7) Capital employed in a business is Rs 2,00,000. Normal rate of return on capital employed is 15%. During the year, the firm earned a profit of Rs 48,000. Calculate goodwill on the basis of 3 years’ purchase of super profit.

(a) Rs  54,000 

(b) Rs 60,000

(c) Rs 50,000 

(d) None of these

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(Q8) A firm earns Rs 1,20,000 as its annual profits. The normal rate of profit being 10%. Assets of firm are Rs 14,40,000 and liabilities are Rs 4,40,000. Find value of goodwill by capitalisation method.

(a) Rs 4,00,000 

(b) Rs 2,80,000

(c) Rs 2,00,000 

(d) Rs 3,60,000

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(Q9) Average profit of firm is Rs 3,00,000. Total tangible assets in the firm are Ra 28,00,000 and outside liabilities are Rs 8,00,000. In same type of business, normal rate of return is 10% of capital employed.

Calculate goodwill by capitalisation of super profit method.

(a) Rs 14,00,000 

(b) Rs 16,00,000

(c) Rs 18,00,000 

(d) Rs 10,00,000

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(Q10) Which of the following is not true in relation to goodwill?

(a) It is an intangible asset

(b) It is fictitious asset

(c) It has a realisable value

(d) None of the above

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(Q11) When goodwill is not purchased, goodwill account can

(a) never be raised in the books

(b) be raised in the books

(c) be partially raised in the books

(d) be raised as per the agreement of the partners

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(Q12) The goodwill of the firm not affected by

(a) location of the firm

(b) reputation of firm

(c) better customer service

(d) None of the above

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(Q13) Weighted average method of calculating goodwill is used when

(a) profits are not equal 

(b) profits show a trend

(c) profits are fluctuating 

(d) None of these

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(Q14) The profits earned by a business over the last 5 years are Rs 12,000; Rs 13,000; Rs14,000; Rs18,000 and Rs 2,000 (loss). Based on 2 years purchase of the last 5 years profits, value of goodwill will be

(a) Rs 23,600 

(b) Rs 22,000

(c) Rs 1,10,000 

(d) Rs 1,18,000

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(Q15) Under the capitalisation method, the formula for

calculating the goodwill is

(a) super profits multiplied by the rate of return

(b) average profits multiplied by the rate of return

(c) super profits divided by the rate of return

(d) average profits divided by the rate of return

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(Q16) The net assets of a firm including fictitious assets of Rs 5,000 are Rs 85,000. The net liabilities of the firm are Rs 30,000. The normal rate of return is 10% and the average profits of the firm are Rs 8,000.

Calculate the goodwill as per capitalisation of super profits.

(a) Rs 20,000 

(b) Rs 30,000

(c) Rs 25,000 

(d) None of these

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(Q17) Total capital employed in the firm is Rs 8,00,00 reasonable rate of return is 15% and profit for the year is Rs 12,00,000. The value of goodwill of the firm as per capitalisation method would be

(a) Rs 82,00,000 

(b) Rs 12,00,000

(c) Rs 72,00,000 

(d) Rs 42,00,000

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(Q18) The average capital employed of a firm is

Rs 4,00,000 and the normal rate of return is 15%.

The average profit of the firm is ` 80,000 per

annum. If the remuneration of the partners is

estimated to be Rs 10,000 per annum, then on the

basis of two years purchase of super profit, the

value of the goodwill will be

(a) Rs 10,000 

(b) Rs 20,000

(c) Rs 60,000 

(d) Rs 80,000

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Hints & Solutions

1. Goodwill has a realisable value so it is asset. However, it cannot be seen or touched, so it is an intangible asset.

3. Profits are directly related to goodwill. So, those factors which affect profits, can affect goodwill too like market situation, i.e. market demand and supply chain, location of business, nature and management of business, etc.

5. Accounting Standard 26 regulates goodwill. As per Accounting Standard 26, only purchased goodwill is accounted for because some consideration is paid for it. So, it has some realisable value.

6. Average Profits =

Total Operating Profits ÷ Number of Years

Average Profits =

(6,000-2,000) + (4,000+3,000) + (2,500 -1,500) ÷

3

 =  4,000

Goodwill = Average Profits × No. of Year's Purchase

Goodwill = × = 4 000 × 3 = 12000

7. Normal Profit = Capital Employeed

× Normal Rate of Return

= 200000 × 15/100

= Rs 30 000

Super Profit = Actual Average Profit − Normal Profit

= 48000 - 30000 = Rs 18,000

Goodwill = Super Profit × No. of Years Purchase

= 18,000 × 3 = Rs  54 000

(Q8)

Capitalised Value of Firm =

Actual Profits

× 100/Normal Rate of Return 

= 12000×100/10

= 12,00,000

∴ Net Assets of Firm = Total Assets − Total Liabilities

=1440000 - 440000 = 1000000

Goodwill = Capitalised Value of Firm

− Net Assets of Firm, 

where,

∴ Goodwill= 12,00,000−10,00,000 = Rs2,00,000

9. Capital Employed (Net Assets)

= Total Assets − Total Liabilities

= 2800000 - 800000= Rs 2000000

Normal Profit = Capital Employed × Normal Rate of

Return / 100

= 2000000 × 10/100

= Rs 200000

Super Profit = Actual Average Profit − Normal Profit

= 3,00,000 − 2,00,000 = Rs 1,00,000

So, Goodwill = Super Profit

× Normal Rate of Return/100

= 100000 × 10/100 

= 10 00 000

14. Average profit of last 5 years

=

12000+13000+14000+18000+2000 / 5

= 

55 000

/ 5

= Rs 11,000

16. Capital Employed = Total Tangible Assets − Outside Liabilities

= (85 000 - 5 000) - 30 000

=  80 000 -  30 000

= Rs 50,000

Normal Profit = Capital Employed ×

Normal Rate of Return

/100

=  50000 × 10/100

= Rs 5,000

Super Profit = Average Profit − Normal Profit

= 8 000 - 5 000

= Rs 3,000

Goodwill =

Super Profit

× Normal Rate of Return

/100

= 3000× 100/10

= Rs 30,000

17. 

Normal Profit =  800000×15

/100

= Rs1,20,000

Super Profit = Average Profit − Normal Profit

= 1200000-120000

= 10,80,000

Goodwill = Super Profit ×

100/ Normal Rate of Return

= 1080000 × 100/15

=  72,00,000

18. Normal Profit = Capital Employed ×

Normal Rate of Return/100

= 4,00,000 ×

15/100

= Rs 60000

Average Profit = 80,000 – 10,000

= Rs 70,000

Super Profit = Average Profit – Normal Profit

= 70,000 – 60,000

= Rs 10,000

Goodwill = Super Profit × No. of Years Purchase

= 10,000 × 2

= Rs 20,000