MCQs of Goodwill chapter Accountancy Class 12

Looking for important theory and Practical MCQs (Multiple Choice Questions) with answers of Goodwill chapter of accountancy class 12 CBSE, ISC, and state board.

We have compiled very important Goodwill theory MCQs with answers of Accountancy class 12

Multiple Choice Questions of Goodwill chapter of Accountancy Class 12

Let’s Practice

If Super profit is negative or zero, it means that the actual average profit is less than or equal to the normal profit.

a) True
b) False
c) Partially true
d) Can’t say

Ans – a)

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

a) ₹50,000
b) ₹10,000
c) ₹6,000
d) ₹56,000

Ans – b)

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.

Ans – d)

Average profit of a business over the last five years ware ₹60,000. The normal yield on capital invested in such a business is estimated at 10% pa. Capital invested in the business is ₹5,00,000. Amount of goodwill, it is based on 3 year’s purchase of last 5 years super profit will be

a) ₹1,00,000
b) ₹1,80,000
c) ₹30,000
d) ₹1,50,000

Ans – c)

Excess of Profits over the __ is called super profit.

a) Super, normal
b) actual, super
c) actual, normal
d) super, actual

Ans – c)

Net assets of a firm including fictitious assets of ₹ 5,000 are ₹ 85,000. Net liabilities of the firm are ₹30,000. The normal Rate of Return is 10% and the average profit of the firm is ₹8,000. Value of goodwill as per capitalization of super profit method will be

a) ₹20,000
b) ₹30,000
c) ₹25,000
d) ₹15,000

Ans – b)

As per AS – 26, __________ goodwill is recorded in the books of accounts.

a) Purchased
b) Self-generated
c) Both a) and b)
d) None of these

Ans – a)

The total capital employed in the firm is ₹8,00,000. The normal Rate of return is 15% and the profit for the year is ₹1,20,000. Value of goodwill as per Capitalisation method would be

a) ₹8,20,000
b) ₹1,20,000
c) Nil
d) ₹4,20,000

Ans – c)

Average capital employed is considered while calculating average profit.

a) True
b) False
c) Partially true
d) Can’t say

Ans – b)

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 management cost is estimated at ₹10,000 per annum, then on the basis of two years purchase of super profit, the value of goodwill will be

a) ₹10,000
b) ₹20,000
c) ₹60,000
d) ₹80,000

Ans – b)

Goodwill helps firms bring ____________ Profits.

a) excess
b) less
c) Similar
d) All of these

Ans – a)

A firm earns a profit of ₹1,10,000. The Normal Rate of Return is 10%. Assets of the firm are ₹11,00,000 and liabilities ₹1,00,000. Value of goodwill by the capitalisation of Average profit will be

a) ₹2,00,000
b) ₹10,000
c) ₹5,000
d) ₹1,00,000

Ans – d)

The capitalized value of a business is ascertained by capitalizing _ earned at a normal rate of return.

a) Revenue
b) Losses
c) Profits
d) turnover

Ans – c)

Net profits during the last three years of a firm are

1st Year – 18,000
2nd Year – 20,000
3rd Year – 22,000

The Capital investment of the firm is ₹60,000. The normal Rate of Return is 10%. Value of goodwill on the basis of three years purchase of the super profit for the last three years will be

a) ₹21,000
b) ₹42,000
c) ₹84,000
d) ₹20,000

Ans – b)

For valuation of goodwill, normal profit is calculated by _______abnormal gains and __________ abnormal losses.

a) adding, deducting
b) deducting, adding
c) deducting, not treating
d) not treating, adding

Ans – b)

Net Assets = All Assets (Except goodwill, fictitious assets and ________ investments) – Outside liabilities.

a) Trade
b) non-trade
c) long term
d) short term

Ans – b)

M/s Supertech India has assets of ₹5,00,000, whereas Liabilities are: Partners capitals – ₹3,50,000, General Reserve – ₹60,000 and Sundry creditors – ₹90,000. If the Normal Rate of Return is 10% and the Goodwill of the firm is valued at ₹90,000 at 2 year’s purchase of super profit, the average profit of the firm will be

a) ₹46,000
b) ₹86,000
c) ₹1,63,000
d) ₹23,000

Ans – b)

The excess amount that a firm gets over and above the market value of assets at the time of sale of its business is

a) Profit
b) Super Profit
c) Reserve
d) Goodwill

Ans – d)

A firm earned ₹60,000 as profit, the normal rate of return being 10%. Assets of the firm are ₹7,20,000 (excluding goodwill) and liabilities are ₹2,40,000. Find the value of goodwill by the capitalization of the Average Profit Method.

a) ₹2,40,000
b) ₹1,80,000
c) ₹1,20,000
d) ₹60,000

Ans – c)

__________ refers to a specific number of years for which a business will earn the same amount of profits because of its past efforts.

a) Amount of profits
b) Span of years
c) Number of years purchase
d) Time of profits

Ans – c)

Jagat and Kamal are partners in a firm. Their capitals are Jagat ₹3,00,000 and Kamal ₹2,00,000. During the year ended 31st March 2021, 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) ₹2,00,000
b) ₹5,00,000
c) ₹3,50,000
d) ₹2,50,000

Ans – d)

Which of these can be a special advantage for a firm that would help in generating goodwill?

a) Import licenses
b) Long term contracts for the supply
c) Patents
d) All of the above

Ans – d)

If super profits are negative, then goodwill will be

a) positive
b) Negative
c) Either a) or b)
d) Nil

Ans – d)

Tangible assets of the firm are ₹14,00,000 and outside liabilities are ₹4,00,000. The profit of the firm is ₹1,50,000 and the normal rate of return is 10%. The amount of capital employed will be

a) ₹10,00,000
b) ₹1,00,000
c) ₹50,000
d) ₹20,000

Ans – a)

Which of these is a feature of goodwill?

a) Invaluable assets
b) Difficult to calculate the exact value
c) Fictitious asset
d) Doesn’t impact the firm’s profits

Ans – b)

When is there a need to value the goodwill?

a) Admission of Partner
b) Retirement of a partner
c) Death of a partner
d) All of the above

Ans – d)

The average profit of the firm is ₹6,00,000. Total tangible Assets in the firm are ₹28,00,000 and outside liabilities are ₹8,00,000. In the same type of business, the normal rate of return is 20%. of the capital employed. Calculate the value of goodwill by Capitalisation of the super profit method.

a) ₹10,00,000
b) ₹5,00,000
c) ₹2,50,000
d) ₹15,00,000

Ans – a)

When Goodwill is not purchased goodwill, Goodwill

a) is not shown in the Balance Sheet
b) is shown in the Balance Sheet
c) May or may not be shown in the Balance Sheet
d) is partly shown in the Balance Sheet

Ans – a)

There is a need to value goodwill when there is an amalgamation of the partnership firm.

a) True
b) False
c) Partially True
d) can’t say

Ans – a)

Ram and Prem are partners in a retail business. Balances in Capital and Current accounts as on 31st March 2021 were:

RAM
Capital accounts – 2,00,000
Current accounts – 50,000

Prem
Capital accounts – 2,40,000
Current accounts – 10,000

The firm earned an average profit of ₹90,000. If the normal rate of return
is 10%. Find the value of Goodwill by Capitalisation Method.

a) ₹4,20,000
b) ₹2,10,000
c) ₹1,10,000
d) ₹2,20,000

Ans – a)

Goodwill can be______

a) Purchased
b) Self-generated
c) Both a) and b)
d) None of these

Ans – c)

As per AS – 26, self-generated goodwill is recorded in the books.

a) True
b) False
c) Partially False
d) Can’t say

Ans – b)

The weighted Average Profit Method of calculating goodwill is useful when

a) Profits are not similar over the years
b) Profits show a trend either rising or falling
c) Profits are higher in one year and lower in another
d) Profits are similar in all the years

Ans – b)

Purchased goodwill is acquired by the business after paying consideration in ________

a) Cash
b) Kind
c) Both a) and b)
d) None of these

Ans – c)

Competency of management does not affect goodwill.

a) True
b) False
c) Partially false
d) Can’t say

Ans – b)

Goodwill calculated by one method is equal to goodwill calculated by any other method

a) True
b) False
c) Partially True
d) Can’t say

Ans – b)

Following are the factors affecting goodwill except

a) Nature of Business
b) Location of the customers
c) Technical know-how
d) Efficiency of Management

Ans – b)

Non-Business incomes are added while calculating average profits

a) True
b) False
c) Partially true
d) Can’t say

Ans – b)

Under Capitalisation Method of Valuation of Goodwill, the formula for calculating
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

Ans – c)

Which method is based on the assumption that a new business will not be able to earn profits during the initial years as compared to an established business?

a) Average Profit Method
b) Weighted Profit Method
c) Super Profit Method
d) All of the above

Ans – a)

Under Super Profit Method, goodwill is calculated by:

a) Number of years purchase * Average profit
b) Number of years purchase * Super Profit
c) Super Profit divided Normal rate of return
d) Super profit – Normal Profit

Ans – b)

The weighted profit method is effective in calculating goodwill when the trend of profit shows that profits are

i) Constant
ii) Rising
iii) Falling

Options

a) Only ii)
b) Only iii)
c) Both ii) and iii)
d) i), ii), iii)

Ans – c)

Which of the following is True in relation of Goodwill?

a) Goodwill is a fictitious asset
b) Goodwill is a current asset
c) Goodwill is a wasting asset
d) Goodwill is an intangible asset

Ans – d)

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

Ans – d)

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

Ans – b)

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

Ans – a)

The Goodwill of the firm is NOT affected by:

a) Location of the firm
b) Reputation of firm
c) Better customer service
d) None of the above

Ans – d)

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%. What is the amount of super profits?

a) ₹50,000
b) ₹10,000
c) ₹6,000
d) ₹56,000

Ans – b)

The profits earned by a business over the last 5 years are as follows: ₹12,000; ₹13,000; ₹14,0000; ₹18,000 and ₹2,000 (loss). Based on
2 years purchase of the last 5 years profits, value of Goodwill will be:

a) ₹23,600
b) ₹22,000
c) ₹1,10,000
d) ₹1,18,000

Ans – b)

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

Ans – c)

Tangible Assets of the firm are ₹14,00,000 and outside liabilities are ₹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) ₹50,000
d) ₹20,000

Ans – a)

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

Ans – c)

Total 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. Calcualte the goodwill as per capitalisation of super profits.

a) ₹20,000
b) ₹30,000
c) ₹25,000
d) ₹None of these

Ans – b)

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 capitalization method would be :

a) ₹82,00,000
b) ₹12,00,000
c) ₹72,00,000
d) ₹42,00,000

Ans – c)

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 remuneratio 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

Ans – b)

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 capitalisation of Average Actual Profits will be:

a) ₹2,00,000
b) ₹10,000
c) ₹5,000
d) ₹1,00,000

Ans – d)

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

Ans – a)