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 a 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 capitalization 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 capitalization 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) Realization of Partnership
D) None of the Above
Answer: B
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 a 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 412,00,000. The value of goodwill of the company as per the capitalization 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 capitalization 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) Realization of Partnership
D) None of the Above
Answer: B

61. Goodwill is ___________.

a. an intangible asset

b. a fixed asset
c. realizable

d. All of the above.

62. Goodwill is to be valued when ___________.

a. amalgamation takes place

b. one company takes over another company

c. a partner is admitted

d. all of the above

63. Goodwill is paid for obtaining __________.

a. future benefit

b. present benefit

c. past benefit

d. none of the above

64. Super profit is ___________.

a. excess of average profit over normal profit

b. extra profit earned

c. average profit earned by similar companies

d. none of the above

65. Normal profit is ___________.

a. average profit earned

b. profit earned by similar companies in the same industry

c. (a) and (b)

d. none of the above

66. Normal profit depends on

a) Normal Rate of Return

b) Average capital employed

c) c)Both (a) and (b)

d) None of the above

67. Goodwill as per purchase of average profit method is equal to ___________.

a. Average Profit

b. Average profit × Amount of purchases

c. Average Profit × Number of years’ purchases

d. All of the above

68. Goodwill as per purchase or super profit method is equal to ___________.

a. Super Profit

b. Super Profit × Amount of purchases

c. Super Profit × Number of year’s purchases

d. None of the above

69. Normal Rate of Return depends on ___________.

a. Rate of Interest

b. Rate of Risk

c. Both (a) and (b

d. None of the above

70. While calculating capital employed, ___________.

a. Tangible trading assets should be considered

b. Intangible assets should be considered

c. Fictitious assets should be considered

d. None of the above

71. Any non-trading income included in the profit should be ___________.

a. eliminate

b. added

c. ignored

d. none of the above

72. Under capitalization of super profit method, Goodwill is equal to ___________.

a. Capitalized value of super profit at NRR

b. Capitalized value of maintained profit

c. (a) and (b)

d. None of the above

The value of goodwill, according to the simple profit method, is—

16. The product of current year's profit and number of years

17. The product of last year's profit and number of years

18. The product of average profits of the given years and number of years.

Ans.(iii)The product of average profits of the given years and number of years.

(31) The goodwill of a business is to be valued at 3 years' purchase of the average profits of the last

three years. The profits of the last three years are Rs. 5,000, Rs. 6,000 and Rs. 7,000

respectively. Hence, the goodwill be valued at—

(i) Rs. 18,000

(ii) Rs. 12,000

(iii) Rs. 15,000.

Ans. (i) Rs. 18,000

(32) A business has a capital of Rs. 40,000 at the end. It had earned profits of Rs. 5,000 during the

year. Hence, the average capital of the business will be —

(i) Rs. 42,500

(ii) Rs. 37,500

(iii) Rs. 35,000.

Ans.(ii) Rs. 37,500

(33) If the average capital of a business is Rs. 60,000 and the normal rate of profit is 15%, then the

normal profits will amount to—

(i) Rs. 10,000

(ii) Rs. 9,000

(iii) Rs. 15,000.

Ans.(ii) Rs. 9,000

(34) If the super-profits of a business are Rs. 6,000 and the normal rate of profit is 10%, then the

amount of goodwill as per the capitalisation method will be—

(i)Rs. 60,000
(ii) Rs. 600

(iii) Neither of the two.

Ans.(i)Rs. 60,000

(35) It is given that net assets available for equity and preference shares amount to Rs. 90,000. The

paid up capitals are 10,000 equity shares of Rs. 2 each and 5,000 preference shares of Rs. 10

each. Therefore, value of an equity share will be—

(i) Rs. 2 per share

(ii) Rs. 4 per share

(iii) Rs. 5 per share.

Ans.(ii) Rs. 4 per share

(36) It is given that net assets available for equity and preference shares amount to Rs.

1,87,000. The paid-up capitals are—10,000 equity shares of Rs. 4 each and 5,000 preference

shares of Rs. 10 each. Therefore, value of a preference share will be— (i) Rs. 10 per share

(ii) Rs. 8 per share

(iii) Rs. 20 per share.

Ans.(iii) Rs. 20 per share.

(37) Under the yield method of valuation of equity share capital, if for an equity share of Rs. 50, the

normal rate of return is 10% and the expected rate of return is 5%, then the value of an

equity share will be—

19. Rs. 25

20. Rs. 50

21. Rs. 100.

Ans.(i) Rs. 25

(38) For calculating the value of an equity share by intrinsic value method, it is essential to know—

www.icwahelpn.co.in :: 6 ::

Mail me- narayan@icwahelpn.co.in

(i) Normal rate of return

(ii) Expected rate of return

(iii) Net equity.

Ans.(iii) Net equity.

(39) For calculating the value of an equity share by yield method, it is essential to know—

(i)Expected rate of return

(ii) Called-up equity share capital

(iii) Capital employed.

Ans. (i) Expected rate of return

(40) For calculating price-earnings ratio, it is essential to know—

(i) Market value per share

(ii) Nominal value per share

(iii) Paid-up value per share.

Ans.(i) Market value per share

(41) For calculating the value of an equity share by earning capacity method, it is essential to know

(i)Nominal value per share

(ii) Rate of earning

(iii) Dividend per share.

Ans.(ii) Rate of earning

(42) A Ltd. and B Ltd. go into liquidation and a new company X Ltd. is formed. It is a case of—

(i) Absorption

(ii) External reconstruction

(iii) Amalgamation.

Ans.(iii) Amalgamation.

(43) X Ltd. goes into liquidation and a new company Z Ltd. is formed to take over the business of X

Ltd. It is a case of—

(i) Absorption
(ii) External reconstruction

(iii) Amalgamation.

Ans.(ii) External reconstruction

(44) X Ltd. goes into liquidation and an existing company Z Ltd. purchases the business of X Ltd. It

is a case of—

(i) Absorption

(ii) External reconstruction

(iii) Amalgamation.

Ans.(i) Absorption

(45) Accumulated profits include—

(i) Provision for doubtful debts

(ii) Superannuation fund

(iii) Workmen's compensation fund.

Ans.(iii) Workmen's compensation fund.

If the net assets taken over by the company are less than the purchase consideration, the

difference shall be treated as :

(i) Secret Reserve

(ii) Goodwill

(iii) Capital Reserve

(iv) General Reserve

Ans.(ii) Goodwill