ANGAD ACADEMY

CHAPTER :- 2
Goodwill - Nature & Valuation WS 4

Section A

1 Hemu and Kishan are partners in a firm. Their Capitals are: Hemu₹ 3,00,000 [1]
and Kishan ₹ 2,00,000. During the year ended 31 𝑠𝑡 March, 2023, the firm
earned a profit of ₹ 1,50,000. The normal rate of return is 20%. Calculate the
value of Goodwill of the Firm by Capitalisation Method.

a) ₹ 3,50,000

b) ₹ 2,50,000

c) ₹ 5,00,000

d) ₹ 2,00,000

2 The net profits for the last 3 years were: 2018 - 19₹ 82,000; 2019 - 20 ₹ [1]
66,400 and 2020 - 21 ₹ 70,000. On 1st October 2019, furniture costing ₹
30,000 was purchased and wrongly debited as office Expenses Account.
Depreciation on furniture was to be charged @ 20% p.a. on written down value
method. Adjusted average profit will be:

a) 78,000

b) 80,000

c) 71,000

d) 66,000

3 Total Assets (excluding goodwill) - outside liabilities will be: [1]

a) Fictitious Assets

b) Capital employed

c) Average Profits

d) Super Profit

4 ________means capital invested in the firm to carry on business. [1]

a) Inventory

b) Trade Investment
 c) Service and goods

d) Capital Employed

5 The net profits for the last 3 years were: 2018 - 19₹ 40,000; 2019 - 20 ₹ [1]
46,000 and 2020 - 21 ₹ 52,000. There was an abnormal loss of ₹ 3,000
included in the profit of 2019 - 20. Adjusted average profit will be:

a) 46,000

b) 47,000

c) 45,000

d) 40,000

6 The net profits for the last 3 years were: 2018 - 19₹ 70,000; 2019 - 20 ₹ [1]
52,000 and 2020 - 21 ₹ 60,000. There was an abnormal loss of ₹ 28,000
included in the profit of 2019 - 20. To cover management cost an annual
charge of ₹ 4,800 should be made for the purpose of goodwill valuation.
Adjusted average profit will be:

a) 70,200

b) 55,200

c) 69,200

d) 65,200

7 Find out that goodwill which is accounted for, as per Accounting Standard 26. [1]
a) Purchased goodwill only and Self - generated goodwill

b) Purchased goodwill only

c) Self - generated goodwill

d) Goodwill brought in by a partner

8 Self - generated goodwill is calculated when: [1]

a) At the time of Admission Retirement/death of a partner

b) At the time of change in profit sharing ratio among the existing partners

c) All of these

d) Amalgamation takes place

9 Goodwill is recorded in the books only when: [1]

 a) Goodwill is self generated

b) A partner retires

c) It is sold

d) Money or money worth is paid for it

10 A partnership firm has capital employed of₹ 6,00,000. Its average profits are ₹ [1]
80,000. The normal rate of return in similar type of business is 10%. The
amount of super profits are:

a) ₹ 8,000

b) ₹ 60,000

c) ₹ 52,000

d) ₹ 20,000

11 ________ is the goodwill which is acquired by making a payment. [1]

a) Trend of Profit

b) Nature of Goods

c) Purchased Goodwill

d) Self - Generated Goodwill

12 Under Super Profit Method, goodwill is calculated by: [1]

a) Number of years’ Purchase× Super Profit

b) Super Profit - Normal Profit

c) Super Profit Normal Rate of Return

d) Number of years’ Purchase× Average Profit

13 Average profit of a business over the last five years was₹ 60,000. The normal [1]
commercial yield on capital invested in such business is 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 year’s super - profits will be

a) ₹ 1,50,000

b) ₹ 1,00,000

c) ₹ 1,80,000
 d) ₹ 30,000

14 The capital of the firm of X and Y is₹ 10,00,000 and the market rate of interest [1]
is 15%. Annual Salary to the partners is ₹ 60,000 each. The profit for the last
three years were ₹ 3,00,000; ₹ 3,60,000 and ₹ 4,20,000. Goodwill of the firm is
to be calculated on the basis of two years purchase of last three years average
super profits. Goodwill of the firm will be:

a) 1,80,000

b) 1,60,000

c) 1,50,000

d) 1,70,000

15 On April 1, 2023 an existing firm had assets of₹ 5,00,000 and liabilities of ₹ [1]
1,00,000. If the normal rate of return is 10% and the goodwill of the firm is
valued at ₹ 1,20,000 at 4 year’s purchase of super profits, average profits of the
firm will be:

a) ₹ 80,000

b) ₹ 90,000

c) ₹ 70,000

d) ₹ 10,000

16 Tangible Assets of the firm are₹ 14,00,000 and outside liabilities are ₹ [1]
4,00,000. Profit of the firm is ₹ 1,50,000 and normal rate of return is 10%. The
amount of capital employed will be :

a) ₹ 50,000

b) ₹ 1,00,000

c) ₹ 10,00,000

d) ₹ 20,000

17 Buyer’s advantage lies in the excess of the normal return on capital employed. [1]
The excess of actual/average profit over normal profit is known as

a) Normal return

b) Capital employed

c) Super profit
 d) Average Method profit

18 Goodwill is valued [1]

a) at the time of change in profit - sharing ratio

b) at the time of retirement or death of a partner

c) at the time of admission of a partner

d) All of these

19 Capitalisation method for goodwill is used when: [1]

a) Always when calculating super profits

b) When business is sold

c) No. of years purchase is not given

d) When total assets are given

20 If the average profit of a business is Rs.50,000 and normal profits are [1]
Rs.60,000, it shows:

a) Positive super profit

b) No Goodwill of business

c) Positive Goodwill

d) Goodwill is more than expected

21 A and B are partners with capitals of₹ 3,00,000 and ₹ 2,00,000 respectively. [1]
Normal rate of return is 15% and goodwill calculated at 2 years purchase of
super profits is valued at ₹ 1,00,000. What were the average profits of the firm?

a) ₹ 1,75,000

b) ₹ 25,000

c) ₹ 60,000

d) ₹ 1,25,000

22 A and B were partners in a firm with capitals of₹ 3,00,000 and ₹ 2,00,000 [1]
respectively. The normal rate

of return was 20% and the capitalised value of average profits was ₹ 7,50,000.
Goodwill of the firm by
 capitalisation of average profits method will be:

a) 2,50,000

b) 2,20,000

c) 2,80,000

d) 2,00,000

23 Total Capital of the partners X, Y and Z is₹ 1,00,000 and the market rate of [1]
interest is 15%. The net profits

for the last 3 years were ₹ 30,000; ₹ 36,000 and ₹ 42,000. Goodwill is to be
valued at 2 years purchase of the last 3 years super profit. Goodwill of the firm
will be:

a) 40,000

b) 44,000

c) 42,000

d) 46,000

24 Average capital employed in a firm is₹ 3,00,000. The normal rate of return in [1]
the business is 20% and the firm’s average profits are ₹ 80,000. Value of
goodwill by capitalisation of super profits method is:

a) ₹ 1,00,000

b) ₹ 8,00,000

c) ₹ 2,00,000
d) ₹ 6,00,000

25 In which of the following situation(s) need for valuation of goodwill arises for a [1]
partnership firm?

a) At the time of admission of a partner

b) At the time of change in profit sharing ratio

c) At the time of death/retirement of a partner

d) All of these

26 Types of goodwill are [1]

a) Average Goodwill and Super Goodwill
 b) Purchase Goodwill and Self Generated Goodwill.

c) Purchase Goodwill and Super Goodwill

d) Average Goodwill and Generated Goodwill

27 Value of goodwill of a firm at 3 times of super profits is₹ 54,000. Average [1]
profits of the firm are ₹ 60,000 (after an abnormal loss of ₹ 8,000). Normal rate
of return is 10%. Capital invested in the firm will be:

a) ₹ 5,00,000

b) ₹ 4,20,000

c) ₹ 3,40,000

d) ₹ 8,60,000

28 X and Y are partners. They have provided following information on the [1]
admission of a new partner Z. Average Profit = 5,00,000; Normal rate of return
= 10%; Net asset (or capital employed) = 30,00,000. Goodwill of the firm (by
using Capitalisation of average Profit) will be:

a) 30,00,000

b) 50,00,000

c) 20,00,000

d) 70,00,000

29 It’s better to use the Weighted Average Profit method of calculation of [1]
Goodwill when:

a) The profits show a rising trend only

b) The profits show a diminishing trend only

c) The profits don’t show any rising or diminishing trend

d) The profits may show either rising or diminishing trend

30 Which of the following is/are method(s) of valuation of goodwill? [1]

a) All of these

b) Average Profit Method

c) Capitalisation Method

d) Super Profit Method

31 The average capital employed of a firm is₹ 4,00,000 and the normal rate of [1]
return is 15%. The average profit of the firm is ₹ 80,000 per annum. If the
remuneration of the partners is estimated to be ₹ 10,000 per annum, then on
the basis of two years purchase of super - profit, the value of the Goodwill will
be:

a) ₹ 20,000

b) ₹ 10,000

c) ₹ 80,000

d) ₹ 60,000

32 Information: [1]
Total of Assets side of the Balance Sheet ₹ 25,00,000. Debit Balances in Current
Accounts of Naresh and Vikesh - ₹ 75,000 and ₹ 25,000 respectively; Bank
Loan - ₹ 8,00,000; Goodwill ₹ 1,00,000; Trade Investments - ₹ 25,000; Profit
and Loss Account (Debit) - ₹ 15,000.

Based on the above information, Capital Employed for the purposes of

valuation of Goodwill will be

a) ₹ 16,85,000

b) ₹ 15,85,000

c) ₹ 17,85,000

d) ₹ 14,85,000.

33 Capital employed by a partnership firm is₹ 5,00,000. Its average profit is ₹ [1]
60,000. The normal rate of return in similar type of business is 10%. What is
the amount of Super Profit?

a) ₹ 6,000

b) ₹ 50,000

c) ₹ 10,000

d) ₹ 56,000

34 Following are the factors affecting goodwill except: [1]

a) Efficiency of Management

b) Location of the Customers

 c) Technical Knowledge

d) Nature of business

35 Formula for capitalization of Average Profit is [1]

𝐴𝑣𝑒𝑟𝑎𝑔𝑒𝑃𝑟𝑜𝑓𝑖𝑡
a) 𝑁𝑜𝑟𝑚𝑎𝑙𝑟𝑎𝑡𝑒𝑜𝑓𝑟𝑒𝑡𝑢𝑟𝑛

𝐴𝑣𝑒𝑟𝑎𝑔𝑒𝑃𝑟𝑜𝑓𝑖𝑡
b) 𝑁𝑜𝑟𝑚𝑎𝑙𝑃𝑟𝑜𝑓𝑖𝑡

𝐴𝑣𝑒𝑟𝑎𝑔𝑒𝑃𝑟𝑜𝑓𝑖𝑡×100
c) 𝑁𝑜𝑟𝑚𝑎𝑙𝑟𝑎𝑡𝑒𝑜𝑓𝑟𝑒𝑡𝑢𝑟𝑛

𝐴𝑣𝑒𝑟𝑎𝑔𝑒𝑃𝑟𝑜𝑓𝑖𝑡+100
d) 𝑁𝑜𝑟𝑚𝑎𝑙𝑃𝑟𝑜𝑓𝑖𝑡

36 At the time of reconstitution of a partnership firm, Goodwill was valued on the [1]
basis of three years purchase of the weighted average profits of the last four
years. The profits and losses of the preceding four years were:

While valuing Goodwill of the firm, it was found that the closing stock of the
year 2019 - 20 was undervalued by₹ 2,000. Goodwill of the firm will be:

a) 92,000

b) 91,000

c) 93,000

d) 90,000

37 Goodwill of the firm is valued at 3 years purchase of simple average profit of [1]
last 4 years. Goodwill was calculated₹ 1,68,000. Total profit of last four years
were:

a) 1,26,000

b) 2,24,000

c) 1,68,000

d) 56,000

38 When Goodwill is not purchasedGoodwill account can: [1]

 a) Neverbe raised in the books

b) Be raised as per the agreement of the partners

c) Be partially raised in the books

d) Be raised in the books

39 When goodwill is not a purchased goodwill, goodwill: [1]

a) may or may not be shown in the balance sheet.

b) is not shown in the balance sheet

c) is partly shown in the balance sheet

d) is shown in the balance sheet

40 X and Y are partners. Following information is available on the admission of Z: [1]

Profit on 31.03.2019 = 10,00,000, Profit on 31.03.2020 = 15,00,000, Profit on
31.03.2021 = 20,00,000, On 30.09.2019 a major repair took place for Plant and
Machinery amounting to ₹ 5,00,000 which was by mistake treated as expense.

Depreciation on Plant and Machinery is charged at the rate of 10% p.a. on

Original cost. Adjusted total profits:

a) 49,25,000

b) 50,00,000

c) 45,00,000

d) 40,75,000

41 Tangible Assets of the firm are₹ 14,00,000 and outside liabilities are ₹ [1]
4,00,000. Profit of the firm is ₹ 1,50,000 and normal rate of return is 10%. The
amount of Capital Employed will be:

a) ₹ 10,00,000

b) ₹ 1,00,000

c) ₹ 20,000

d) ₹ 50,000

42 Intangible Assets (Goodwill) has been defined in: [1]

a) AS - 21
 b) AS - 16

c) AS - 20

d) AS - 26

43 Normal profit is calculated to value goodwill [1]

a) By adding capitalprofit

b) by adding abnormal losses

c) by deducting abnormal gains and adding abnormal losses

d) by deducting abnormal gains (profit)

44 ________ is the goodwill which is not purchased for consideration but is earned [1]
by the efforts of the management.

a) Purchased Goodwill

b) Constructive

c) Self - generated Goodwill

d) Profit and Loss

45 Total assets of a firm including fictitious assets of₹ 5,000 are ₹ 85,000. the net [1]
Liabilities of the firm are ₹ 30,000. The normal rate of return is 10% and the
average profit of the firm is ₹ 8,000. Calculate the goodwill as per the
capitalisation of super profits.

a) ₹ 10,000

b) ₹ 30,000

c) ₹ 25,000

d) ₹ 20,000

46 ________ is the excess of actual profit over normal profit. [1]

a) Normal profit

b) Super Profit

c) Super Loss

d) Average Profit
47 Excess amount that a firm gets over and above the market value of assets at the [1]
time of sale of its business is:

a) Goodwill

b) Reserve

c) Profit

d) Super Profit

48 When a product plays important role in increasing the goodwill of the firm, [1]
what factor is mainly responsible for that?

a) Efficiency of Management

b) Quality of product.

c) Favourable Contracts

d) Market Situation

49 ________ means good name, a goodreputation earned by a firm through the hard [1]
work and honesty of its owners.

a) Negative Super Profit

b) Low Average profit

c) Revaluation Profit

d) Goodwill

50 Match the followings: [1]

The profit of last 4 years were 2017 - 18 ₹ 2,50,000; 2018 - 19 ₹ 2,80,000;
2019 - 20 ₹ 2,70,000; 2020 - 21 ₹ 3,00,000.
 a) (a) - (iv), (b) - (i), (c) - (iii), (d) - (ii)

b) (a) - (ii), (b) - (iii), (c) - (iv), (d) - (i)

c) (a) - (iii), (b) - (i), (c) - (ii), (d) - (iv)

d) (a) - (iii), (b) - (i), (c) - (iv), (d) - (ii)

51 Annual profit shown by a business is Rs.20,000. The normal rate of return [1]
10%. Total assets of the business firm Rs.2,40,000 and liabilities Rs.80,000.
Value of Goodwill will be:

a) Rs.40,000

b) Rs.30,000

c) Rs.20,000

d) No Goodwill of Business

52 An asset that is not fictitious but intangible in nature, having realizable value is: [1]
a) Machinery

b) Goodwill

c) Furniture

d) Building

53 Total capital employed in the firm is₹ 8,00,000, Normal Rate of Return is 15% [1]
and Profit for the year is ₹ 12,00,000. The value of goodwill of the firm as per
the capitalisation method would be
 a) ₹ 12,00,000

b) ₹ 82,00,000

c) ₹ 42,00,000

d) ₹ 72,00 000

54 Net Assets minus Capital Reserve is: [1]

a) Liquid assets

b) Goodwill

c) Total assets

d) Purchase consideration

55 The goodwill of a firm was valued on the basis of 3 years purchase of average [1]
profits for the last four years. The profits of last four years ending 31 𝑠𝑡 March
were as follows:

The value of goodwill of the firm was:

a) ₹ 20,690

b) ₹ 8,885

c) ₹ 58,950

d) ₹ 37,950

56 Capital employed by a partnership firm is₹ 5,00,000. Its average profit is ₹ [1]
60,000. The normal rate of return is similar type of business is 10%. The
amount of super profit is:

a) ₹ 56,000

b) ₹ 50,000

c) ₹ 10,000

d) ₹ 6,000
57 Under the capitalisation method, the formula for calculating the goodwill is: [1]
a) Super profits divided by the normal rate of return

b) Super profits multiplied by the normal rate of return

c) Capital employed divided by the normal rate of return

d) Capital employed multiplied by the normal rate of return

58 Profit of last 3 years were as follows: 2018 - 19: 50,000; 2019 - 20: 80,000 ; [1]
2020 - 21: 1,00,000 Weighted average profit will be (if weight assigned 1, 2, 3):

a) 1,70,000

b) 85,000
c) 90,000

d) 1,10,000

59 Average Profit earned by a firm is₹ 1,00,000 which includes undervaluation of [1]
stock of ₹ 40,000 on an average basis. The capital invested in the business is ₹
6,30,000 and the normal rate of return is 5%. Goodwill of the firm on the basis
of 5 times of super profit will be:

a) 5,20,500

b) 5,42,500

c) 5,42,000

d) 5,40,000

60 The average profit earned by a firm is₹ 75,000 which includes undervaluation [1]
of stock of ₹ 5,000 on an

average basis. The capital invested in the business is ₹ 7,00,000 and the normal
rate of return is 7%. Goodwill

of the firm on the basis of 3 times the super profit will be:

a) 78,000

b) 93,000

c) 63,000

d) 49,000
61 Match the followings from the given information : Average Profit = 2,00,000; [1]
Capital employed = 15,00,000;

Normal rate of return = 10%; Number of years purchased = 3 years

a) (a) - (i), (b) - (iv), (c) - (iii), (d) - (ii)

b) (a) - (i), (b) - (iii), (c) - (iv), (d) - (i)

c) (a) - (ii), (b) - (iii), (c) - (iv), (d) - (i)

d) (a) - (i), (b) - (iv), (c) - (ii), (d) - (iii)

62 Weighted Average Method of calculating Goodwill is used when: [1]

a) Profits are almost same every year (including loss in one year only)

b) Profits are showing increasing trends/decreasing trends

c) Profits are not equal (increasing in one year and decreasing in other year)

d) There are regular losses in the business

63 The term Number of Years Purchasemeans [1]

1. The number of years during which the purchaser of Goodwill expects
that the profit due to goodwill are likely to arise in the future.

2. Number of years for which goodwill is purchased.

3. Number of years for which goodwill purchased will not help the firm in
earning similar profits.

4. None of these

a) Statement (i) is correct.

b) Statement (iii) is correct.

c) Statement (ii) is correct.

d) Statement (iv) is correct.

64 The Goodwill of the firm is NOT affected by: [1]
a) Location of the firm

b) Reputation of firm

c) None of these

d) Better customer service

65 Match the followings with the given information: The profit of last 4 years were [1]
2017 - 18₹ 1,00,000; 2018 - 19 ₹ 2,00,000; 2019 - 20 ₹ 3,00,000; 2020 - 21 ₹
4,00,000. Average Adjusted profit will be:

a) (a) - (ii), (b) - (iii), (c) - (iv), (d) - (i)

b) (a) - (i), (b) - (iv), (c) - (ii), (d) - (iii)

c) (a) - (ii), (b) - (iii), (c) - (i), (d) - (iv)

d) (a) - (iv), (b) - (i), (c) - (iii), (d) - (ii)

66 Identify the formula for calculating goodwill with the help of Average Profit [1]
Method.

a) Goodwill = Total Profit× No. of Years’ Purchases

b) Goodwill = Average Profit× 5 years

c) Goodwill = Total Profit× No. of Years the firm has been in operation

d) Goodwill = Average Profit× No. of Years’Purchases

67 Match the followings: The profit of last 4 years were 2017 - 18₹ 1,00,000; 2018 [1]
- 19 ₹ 2,00,000; 2019 - 20

₹ 3,00,000; 2020 - 21 ₹ 4,00,000. Capital employed 15,00,000; Normal rate of

return 10%; Number of years
 purchased 2 years.

a) (a) - (ii), (b) - (iii), (c) - (iv), (d) - (i)

b) (a) - (iii), (b) - (i), (c) - (ii), (d) - (iv)

c) (a) - (iii), (b) - (ii), (c) - (i), (d) - (iv)

d) (a) - (iv), (b) - (i), (c) - (iii), (d) - (ii)

68 Information: [1]
Capital Accounts of Partners Harish and Suraj - ₹ 5,00,000 each; Balances in
Current Accounts of Harish and Suraj ₹ 50,000 and ₹ 40,000 respectively; Bank
Loan - ₹ 10,00,000; Goodwill ₹ 50,000; Investments - ₹ 25,000;
Advertisement Suspense - ₹ 15,000.

Based on the above information, Capital Employed for the purposes of

valuation of Goodwill, will be

a) ₹ 10,40,000.

b) ₹ 10,00,000

c) ₹ 10,90,000

d) ₹ 10,75,000

69 Capital invested in a firm is₹ 5,00,000. Normal rate of return is 10%. Average [1]
profits of the firm are ₹ 64,000 (after an abnormal loss of ₹ 4,000). Value of
goodwill at four times the super profits will be:

a) ₹ 40,000

b) ₹ 72,000

c) ₹ 2,40,000

d) ₹ 1,80,000
70 [1]

Match the followings:

a) (a) - (i), (b) - (iv), (c) - (iii), (d) - (ii)

b) (a) - (i), (b) - (iv), (c) - (ii), (d) - (iii)

c) (a) - (iv), (b) - (i), (c) - (iii), (d) - (ii)

d) (a) - (iv), (b) - (i), (c) - (ii), (d) - (iii)

71 X and Y are partners. They have provided following information on the [1]
admission of a new partner Z. capital = 10,00,000; Reserves & surplus =
3,00,000; Outside liabilities = 3,00,000; Total asset = 16,00,000 (Including
Miscellaneous expenditure of₹ 1,00,000). Capital employed of the firm is:

a) 16,00,000

b) 12,00,000

c) 13,00,000

d) 10,00,000

72 Under the Capitalisation of Super Profit, the formula for calculating the [1]
goodwill is
a) Average profit divided by the rate of return

b) Super profit divided by the rate of return

c) Super profit multiplied by the rate of return

d) Average profit multiplied by the rate of return

73 Average profit of a firm during the last few years is₹ 1,50,000. In similar [1]
business, the normal rate of return is 10% of the capital employed. Calculate
the value of goodwill by capitalisation of super profit method if super profits of
the firm are ₹ 50,000. Goodwill of the firm will be:

a) 5,50,000
 b) 4,50,000

c) 5,00,000

d) 6,00,000

74 M/s. SkyHonour India has assets of₹ 5,00,000, whereas Liabilities are: [1]
Partners’Capitals - ₹ 3,50,000, General Reserve - ₹ 60,000 and Sundry
Creditors - ₹ 90,000. If Normal Rate of Return is 10% and Goodwill of the firm
is valued at ₹ 90,000 at 2 years’ purchase of Super Profit, the Average Profit of
the firm will be

a) ₹ 86,000

b) ₹ 23,000.

c) ₹ 1,63,000

d) ₹ 46,000

75 A firm earned₹ 60,000 as profit, the normal rate of return being 10%. Assets of [1]
the firm are ₹ 7,20,000 (excluding goodwill) and Liabilities are ₹ 2,40,000. Find
the value of Goodwill by Capitalisation of Average Profit Method.

a) ₹ 2,40,000

b) ₹ 1,20,000

c) ₹ 1,80,000

d) ₹ 60,000