Goodwill MCQs

Goodwill MCQs

1. 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 profits
(C) Reserve
(D) Goodwill

2. Which of the following is NOT true in relation to goodwill?
(A) It is an intangible asset
(B) It is a fictitious asset
(C) It has a realizable value
(D) None of the above

3. 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

4. The Goodwill of the firm is NOT affected by:
(A) Location of the firm
(B) Reputation of the firm
(C) Better customer service
(D) None of the above

5. Capital employed by a partnership firm is ₹5,00,000. Its average profit is ₹60,000. The normal rate of return in a similar type of business is 10%. What is the amount of super-profits?
(A) ₹50,000
(B) ₹10,000
(C) ₹6,000
(D) ₹56,000

Goodwill MCQs

6. 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 the above

7. The profits earned by a business over the last 5 years are as follows: ₹12,000; ₹13,000; ₹14,000; ₹18,000 and ₹2,000 (loss). Based on 2 years purchase of the last 5 years profits, the value of Goodwill will be:
(A) ₹23,600
(B) ₹22,000
(C) ₹1,10,000
(D) ₹1,18,000

8. The average profit of a business over the last five years amounted to ₹60,000. The normal commercial yield on capital invested in such a business is deemed to be 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 :
(A) ₹1,00,000
(B) ₹1,80,000
(C) ₹30,000
(D) ₹1,50,000

9. Under the capitalization 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

Goodwill MCQs

10. The net assets of a firm including fictitious assets of ₹5,000 are ₹85,000. The net liabilities of the firm are ₹30,000. The normal rate of return is 10% and the average profits of the firm are ₹8,000. Calculate the goodwill as per capitalization of super-profits.
(A) ₹20,000
(B) ₹30,000
(C) ₹25,000
(D) None of these

11. Total Capital employed in the firm is ₹8,00,000, reasonable rate of return is 15% and Profit for the year is ₹12,00,000. The value of goodwill of the firm as per the capitalization method would be :
(A) ₹82,00,000
(B) ₹12,00,000
(C) ₹72,00,000
(D) ₹42,00,000

12. The average capital employed of a firm is ₹ 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 ₹ 10,000 per annum, then on the basis of two years purchase’ of super-profit, the value of the Goodwill will be :
(A) ₹10,000
(B) ₹20,000
(C) ₹60,000
(D) ₹80,000

13. A firm earns ₹1,10,000. The normal rate of return is 10%. The assets of the firm amounted to ₹11,00,000 and liabilities to ₹1,00,000. Value of goodwill by capitalization of Average Actual Profits will be :
(A) ₹2,00,000
(B) ₹10,000
(C) ₹5,000
(D) ₹1,00,000

14. Capital invested in a firm is ₹5,00,000. Normal rate of return is 10%. Average 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) ₹72,000
(B) ₹40,000
(C) ₹2,40,000
(D) ₹1,80,000

15. P and Q were partners sharing profits and losses in the ratio of 3 : 2. They decided that with effect from 1st January 2019 they would share profits and losses in the ratio of 5 : 3. Goodwill is valued at ₹1,28,000. In adjustment entry :
(A) Cr. P by ₹3,200; Dr. Q by ₹3,200
(B) Cr. P by ₹37,000; Dr. Q by ₹37,000
(C) Dr. P by ₹37,000; Cr. Q by ₹37,000
(D) Dr. P by ₹3,200 Cr. Q by ₹3,200

Goodwill MCQs

16. A, B and C are partners sharing profits in the ratio of 4 : 3: 2 decided to share profits equally. Goodwill of the firm is valued at ₹ 10,800. In adjusting entry for goodwill :
(A) A’s Capital A/c Cr. by ₹4,800; B’s Capital A/c Cr. by ₹3,600; C’s Capital A/c Cr. by ₹2,400.
(B) A’s Capital A/c Cr. by ₹3,600; B’s Capital A/c Cr. by ₹3,600; C’s Capital A/c Cr. by ₹3,600.
(C) A’s Capital A/c Dr. by ₹1,200; C’s Capital A/c Cr. by ₹1,200;
(D) A’s Capital A/c Cr. by ₹1,200; C’s Capital A/c Dr. by ₹1,200

17. A, B and C were partners sharing profits and losses in the ratio of 7 : 3 : 2. From 1st January 2019 they decided to share profits and losses in the ratio of 8:4:3. Goodwill is ₹1,20,000. In Adjustment entry for goodwill:
(A) Cr. A by ₹6,000; Dr. B by ₹ 2,000; Dr. C by ₹4,000
(B) Dr. A by ₹6,000; Cr. B by ₹ 2,000; Cr. C by ₹4000
(C) Cr. A by ₹6,000; Dr. B by ₹ 4,000; Dr. C by ₹2,000
(D) Dr. A by ₹6,000; Cr. B by ₹ 4,000; Cr. C by ₹2,000

18. P, Q, and R were partners in a firm sharing profits in   5: 3 : 2 ratio. They decided to share the future profits in 2:3:5. For this purpose, the goodwill of the firm was valued at ₹1,20,000. In adjustment entry for the treatment of goodwill due to change in the profit-sharing ratio :
(A) Cr. P by ₹24,000; Dr. R by ₹24,000
(B) Cr. P by ₹60,000; Dr. R by ₹60,000
(C) Cr. P by ₹36,000; Dr. R by ₹36,000
(D) Dr. P by ₹36,000; Cr. R by ₹36,000

19. Which goodwill is recorded in books of accounts?
(A) Purchased Goodwill
(B) Self-generated Goodwill
(C) Both
(D) None of the above

20. What are super profits?
(A)Actual profit – Normal Profit
(B) Normal Profit – Actual profit
(C) Actual profit + Normal Profit
(D)None of the above