Corporate accounting
IMP MCQ of Valuation of Goodwill :
1. Goodwill is defined as
A) Intangible asset
B) Fictitious asset
C) Current asset
D) Liquid asset
Answer: A
2. Break-even indicates
A) Revenues are more than cost
B) Revenues and cost are equal
C) Costs are more than revenue
D) None of the Above
Answer: B
3. The excess amount which the firm can get on selling its assets over and above the saleable value of its assets is called
A) Surplus
B) Super Profit
C) Reserve
D) Goodwill
Answer: D
4. A firm’s goodwill is not affected by
A) Location of the firm
B) The reputation of the Firm
C) Better Customer Service
D) None of the Above
Answer: D
5. Weighted average method of calculating goodwill is used when
A) Profits are not equal
B) Profits show an increasing or decreasing trend
C) Profits are Fluctuating
D) None of the Above
Answer: B
6. 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
Answer: C
7. The total capital employed in the company is ₹8,00,000 a reasonable rate of return is 15% and the profit of the year is 12,00,000. The value of goodwill of the company as per the capitalisation method will be
A) ₹ 82,00,000
B) ₹ 12,00,000
C) ₹ 72,00,000
D) ₹ 42,00,000
Answer: C
8. A firm earns ₹1,00,000. The normal rate of return is 10%. The assets of the company amounted to ₹11,00,000 and liabilities to ₹1,00,000. Value of goodwill by the capitalisation of average actual profit will be
A) ₹ 2,00,000
B) ₹ 10,000
C) ₹ 5,000
D) ₹ 1,00,000
Answer: D
9. When there is a change in the current partners’ association that results in ending the existing agreement and initiate a formation of a new agreement is known as
A) Revaluation of Partnership
B) Reconstitution of Partnership
C) Realisation of Partnership
D) None of the Above
Answer: B
10. X, Y, and Z are partners in a company sharing profits in the ratio 4:3: 2. Their balance sheet as at 31-3-2018 showed a debit balance of Profit and Loss A/c ₹1,80,000. From 1-4-2018 they will share profits equally. In the journal entry to give effect to the above arrangement when X, Y, and Z decide not to close the profit and loss account.
A) Dr X by ₹ 20,000, Cr Z by ₹20,000
B) Cr X by ₹ 20,000, Dr Z by ₹20,000
C) Dr X by ₹ 40,000, Cr Z by ₹40,000
D) Cr X by ₹ 20,000, Dr Z by ₹20,000
Answer: B
11) Average profit is ₹19,167 and normal profit is ₹10,000. The Super Profit is ___
(A) ₹ 9,167 (B) ₹ 29,167
(C) ₹ 19,167 (D) ₹ 10,000
Ans:A
12) Super profit is ₹ 9,167 and the normal Rate of Return is 10%. Goodwill as per
capitalization of Super Profit method is equal to
(A) ₹ 91,670 (B) ₹90,600
(C) ₹67,910 (D) ₹95,000
Ans:A
13) Capital employed is ₹50,000. Trading Profit amounted to ₹12,200, ₹15,000 and ₹2,000
loss for 2016. 2017 and 2018 respectively. Rate of Interest is 8% and the rate of risk is
2%. Remuneration from alternative employment of the proprietor is ₹3,600 p.a.
Amount of Goodwill at 3 years purchase of Super Profit is _____
(A) ₹8,000 (B) ₹ 8,800 (C) ₹ 8,850 (D) ₹ 9,500
Ans:C
14) The company earns a net profit of ₹24,000 with a capital of ₹1,20,00. The NRR is 10%.
Under capitalization of super profit, goodwill will be.
(A) ₹ 1,20,000 (B) ₹ 70,000 (C) ₹ 12,000 (D) ₹ 24,000
Ans: A
15) Average capital employed ₹14,00,000.
Net Profit
2011 2,50,000
2012 1,00,00 (loss)
2013 4,50,000
NRR 10%
Goodwill at 3 years' purchase of Super profit will be ____
(A) ₹ 1,80,000 (B) ₹ 1,50,000 (C) ₹ 1.20,000 (D) ₹ 90,000
Ans: A
16) The profits and Losses or the last year are 2001-02. Losses ₹10,000; 2015-16 Losses
₹ 2,500; 2016-17 Profits ₹98,000 & 2017-18 Profits ₹76,000. The average capital
employed in the business is ₹2, 00,000: The rate of interest expected from capital
invested is 12%. The remuneration of partners is estimated to be ₹1,000 per month.
Calculate the value of goodwill on the basis of two years purchase of super profits
based on the average of four year.
(A) ₹ 9,000 (B) ₹ 8,750 (C) ₹ 8,500 (D) ₹ 8,250
Ans:C
17) The profits of last five years are ₹1,70,000; ₹1,80,000; ₹1,40,000; ₹2,00,000 and ₹
1,60,000. Find the value of goodwill, if is calculated on average profits of last five years
on the basis of three year's purchase.
(A) ₹ 1,70,000 (B) ₹ 5,10,000
(C) ₹ 5,30,000 (D) ₹ 5,70,000
Ans: B
18) The profits of the last three years are ₹40,000; 2016-17 profits ₹60.000 & 2017- 18
profits ₹66,500. The total liabilities of the firm are ₹10,00,000 of which outsiders
liabilities ₹5,42,500. The rate of interest expected from capital invested is 10%. The
value of goodwill on capitalization basis of super profit:
(A) ₹ 97,000 (B) ₹ 97,250
(C) ₹ 97,500 (D) ₹ 97,750
Ans: C
19) The profit for 2003-2004 are ₹ 4,000; for 2016-2017 is ₹ 52,200 and for 2017-2018
is ₹62,400. Closing stock for 2016-2017 and 2017-2018 includes the defective items
of ₹4,400 and ₹12,400 respectively which were considered as having market value
Nil. The value of goodwill on average profit method is:
(A) ₹ 47,400 (B) ₹ 35,400 (C) ₹ 27,400 (D) ₹ 34,600
Ans:B
20) Total capital employed in the firm ₹16,00,000 Reasonable Rate of Return 15% Profit
for the year ₹24,00,000 The value of goodwill using capitalization method is:
(A) ₹1,64,00,000 (B) ₹24,00,000
(C) ₹1,44,00,000 (D) ₹84,00,000
Ans:C
21) The profit of last five years are ₹85,000; ₹90,000 and ₹70,000; ₹ 1,00,000 and
₹80,000. Find the value of goodwill, if it is calculated on average profits of last five
years on the basis of 3 years of purchase.
(A) ₹ 2,55,000 (B) ₹ 2,25,000 (C) ₹ 2,75,000 (D) ₹ 2,85,000
Ans:B
22) The profits of last three years are ₹42,000; ₹39,000 and ₹45,000. Find out the
goodwill of two years purchase.
(A) ₹ 42,000 (B) ₹ 84,000 (C) ₹ 1,26,000 (D) ₹ 85,000
Ans:B
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