An Aid to Accountancy--CBs XI

MCQ.22

2.GOODWILL: NATURE
AND VALUATION

Multiple CholceQuestions MCQ))

Select the correet alternative: is
fim measured in terms
of ts future earming capacity knownas
value of the reputation of a
Money
Trade mark. Goodwil
Economic Value.
Brand Value. realisable value is known as
A n asset which is not fictitious but iIntangible In nature, having

Building Machinery.
Vehicle.
Goodwill
3. ldentify the correct statement of the following:
is a current asset.
Goodwill
Goodwil is afictitious asset. Goodwll is an intangible asset.
Goodwill is a wasting aset.
Excess amount that a fim gets over and above the net assets at the time of sale of business is

Profit Super Profit.

Reserve Goodwil
5. When Goodwillis not a
purchased goodwill, Goodwill
i s not recognised in the books of account.
i s recognised in the books of account.
may may not be recognised in the books of account.
or

O is partly recognised in the books of account.

6. Weighted Average Proft Method of calculating goodwill is useful when

Profits are not similar over the years and are fluctuating
Profits show a rising or falling trend.
Profits are higher in one year and lower in another.
Profits are similar In all the years.
7. Following factors affect the value of goodwill except
Nature of Business. The form of business entity.
Technical Know-how. Efficiency of Management.
8. Goodwill s valued at the time of

Change in Profit-sharing Ratio.

Retirement/death of a Partner.
Admission of a new partner.
All of these.
9. Under average profit basis, Goodwill is calculated as:
Super Profit x No. of years' purchase.
Average Profit x No. of years' purchase.

Total of the discounted value of expected future profits.

Super profit divided by expected rate of retun.

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Multiple Choice Questions MCO.23
10. The term 'Number of Years' Purchase' means
T h e number of years during which the purchaser of Goodwill expects that the profit due to
goodwill are likely to arise in future
Number of years in which goodwill is purchased.
O umber of years for which goodwll purchased will not help the firm in earning similar profits.
None of the above.

11. Raj & Associates is a partnership firm. It Intends to value Its Goodwill. Average profit for the past 5 years
is1,50,000, and Goocwill ls being valued at 3 years' purchase of average profit, value of Goodwill of the
firm will be

R4,50,000. 1,50,000.
3,00,000. 6,00,00o.
12. Mona, Reena and Sona are carrylng on business in partnership. Goodwill of the firm is to be valued at
years' purchase of average profits of last 5 years. Profit of last 5 years are given below:

Year 1
Year 22 Year
3 Year 4
Year 5
16,000
15,000 B,000) 7,000 10,000
Goodwill of the fim willbe
O24,000.
33,60o.
30,000. None of these.
13. Following were the profits of a firm for the last 3 years:

Tear Profit ()
2019-20 3,00,000 (including abnormal gain of 90,000)
2020-21 2,40,000 (after charging abnormal loss of 1,20,000)
2021-22 3,60,000 (excluding ? 1,20,000 payable on the insurance of machinery)
Goodwill of the firm on the basis of 4 years' purchase of the average profit for the last 3 years will be
12.00,00. 10,80,000.
12,80,00. None of these.
14. Super Profit means
Average Profit - Normal Profit.
OWeighted Profit + Number
of Weights.
Total Profit
Number of Years. None ofthese.
15. Capital employed by a partnership firm isR5,00,000. Its average profit is
in similar type of business is 10%. The amount of Profit Is
60,000. The normal rate of retur
Super
50,000. 10,00o.
6,000.
s6,00.
16. Under Super Profit Method, goodwill is calculated by
Number of years' Purchase x Average Profit. O Number of years' Purchase x Super Profit.
Super Profit + Normal Rate of Return. Super Profit Normal Profit.

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 MCQ.24 An Aid to Acecountancy-CBSE XII

17. Average profit of a business over the last five years is 60,000. Normal yield on capital invested in sucha
business is3 estimated at 10% p.a. Capital Invested in the business ls? 5,00,000. Amount of goodwil, f it is
based on years' purchase of last 5 years super profits will be
O 1,00,000. 1,80,000.
O 30,000. 1,50,000.
18. Net Profits during the last three years of a firm are:
Year
Profit ( 18,000 20,000 22.000
of firm is 60,000. Normal Rate of Return is 109%. Value the basis of
Capital investment the
three years' purchase of the Super Profit for the last three years will be
of Goodwill on

O 21,000. 42,000.
84,000. 20,000
19. M/s.Supertech India has assets of 5,00,000, whereas Liabilities are: PartnersCapitals-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 t 90,000 at 2 years purchase of Super Profit, the Average Profit of the fim will be
46,000. 86,000.
1,63,00 23,00o.
20. Average Capltal Employed of a fim isR4,00,000 and the Nomal Rate of Retum is 15%. Average profit of
the firm ls 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, value of Goodwill will be
10,000. 20,000.
O60,000. 80.000.
21. Net assets of a fim including fictitious assets of 5.000 are 85,000. Net liabilities of the fim are
30.000. Normal Rate of Returnis 10% and the Average Profit of the firm is 8,000. Value of goodwill as
per Capltalisatlon of Super Profit Method will be
20,000. 30,000
25,000. 15,000.
22. Total Capital employed in the firm is R 8.00,000, Normal Rate of Return is 15% and profit for the year is
1,20,000. Value of goodwill as per Capitalisation Method would bee
8,20,000 1,20,0o.
NIL 4,20,00.
23. Afirm eans profit of 1,10.000. Normal Rate of Return is 109%. Assets of the fim areT 1,.00,00 and
liabilities 1,00,000. Value of goodwill by Capitalisation of Average Profit will be
200,000. 10,000.
5,000. 100,000.
24. A firm earned 60,000 as profit, the normal rate of return being 10%. Assets of the firm are 7,20,000
(excluding goodwil) and LIabilties are R 240,000. Find the value of Goodwill by Capitalisation of Average
Profit Method.
O 2,40,000 R1,80,000
1,20,000 60,000
25, Tanglble Assets of the firm are 14,00.000 and outside liabilities are 7 40.000. Proft of the fim is
1,50.000 and normal rate of return is 10%. The amount of capitalemployed will be
O 10,00,000 1,00,000
O50,000 20,000 (CBSE 2020)

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Multiple Choice Questions MCQ.25

the firm is 6,00,000. Total Assets in the firm28,00,000 and Outside

are
40 Average Profit of tangible
Liabilities are T 8,00,000. In the same
type of business, the normal rate of retum is 206 of the capital
Calculate the value of goodwill by Capitalisation of Super Profit Method.
employed.
O 10,00.000 5,00,00
2.50,00o 15,00,000
27. Ram and Prem are partners in a retail business. Balances in Capital and Current Accounts as on 31st March,
2021 were:

Capital Account ) Current Account ()

Ram 2,00,000 50,000
Prem 2,40,.000 10,000 (Dr)
Thefrm eamed an average proft of R90,000. ifthe normal rate of return Is 10%, find the value of Goodwill
by Capitalisation of Average Profits.
T4,20,000. T210,00.
T1,10,000. 2,20,00o.
Capital Employed in a firm is calculated from Liabilities Side Approach as follows:

Partners' CapitalAccount
-Credit(tfbalance in Current Account + Free Reserves +Credit 8alance of
Profit
OutsideandLiabilities.
Loss any) Goodwill Non-Trade investments Fictlous Assets A l
- -

Partners Capital +Credit Balance in Current Accounts (or- Debit balance of Current Accounts)
* Free Reserves +Credit Balance of Profit and Loss Account (if any) Goodwill Non-Trade
Investments - Fictious Assets.

O Partners' Capital Credit Balance in Current Accounts + Free Reserves+Credit Balance of

Profit and Loss Account (if any) Goodwill Non-Trade Investments Fictious Assets All
Outside Liabilities.
A l l Assets Goodwill - Non-Trade Investments Fictious Assets Debit Balance in Profit and

Loss Account All Outside Liabilities.

29. Capital Employed in a firm is calculated from Assets Side Approach as follows:
A l l Assets Goodwill Non-Trade Investments - Fictious Assets - Long-term Outside Liabilities
O A l l Assets Goodwill - Non-Trade Investments - Fictious Assets Credit Balance in Current

Accounts All Outside Liabilities.

Partners' Capital- Credit Balance in Current Accounts +Free Reserves+ Credit Balance of
Profit and Loss Account (if any) Goodwill Non-Trade Investments Fictious Assets All
Outside Llablitles
A l l Assets Goodwill Non-Trade Investments Fictious Assets Debit Balance In Profit and
Loss Account Debit Balance in Current Account All Outside Liabilities.

30. Information:
Capital Accounts of Partners Naresh and Vikesh- 500,000 each; Balances In Current Accounts of
Naresh and Vikesh- 50,000 and 40,000 respectively: Bank Loan- 10,00,000; Goodwill ?50,000;
Investments- 25,000; Advertisement Suspense- 15.000.

8ased on the above information, Capital Employed for the purposes of valuation of Goodwill will be
10,75,000.
10,90,0oo.
10,00,000. 10,40,000

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 An Aid to Accountancy-CBSE XII
MCQ.26
31. Information:
Debit Balances in Current Accounts of Naresh
Total of Assets side of the Balance Sheet- 25,00,000. Goodwill t1,00,000; Trade
and Vikesh-t 75,000 and 25,000 respectlvely: Bank Loan- 8,00,000;
Investments-{ 25,000; Profit and Loss Account (Debit)--R15,000.
of valuation of Goodwill will be
Based on the above Information, Capital Employed for the purposes

1685,000. 15,85.000.
17,85,000. 14,85000.
32. In valuation of Goodwill Average profit is determined considering
Actual business profit for each year
It for abnormal profits and losses, if any.
O Actual business profit for each year adjustlng
A c t u a l business profit for each year adjustlng It for abnormal losses, if any.

Actual business profit for each year adjusting it for abnormal profits, if any.

Assertion-Reason Based Questions

Given below are two statements (in each question), one labelled as Assertion (A) and other labelled as Reason (R)
1. Assertion (A: Goodwillis an intangible asset because of which an enterprise is likely to earn higher profits
without putting extra efforts.
Reason (R: Goodwill is an intangible asset as It exists but does not have a physical existence. Also, if
an enterprise enjoys goodwill, it will have repeated customers and will also attract more
customers due to which sales will increase and thus the profits

In the context of above two statements, which of the following is correct?

is not the correct explanation of
Assertion A) and Reason (R)
Assertion (A.
are corect but the Reason
(
Both Arsertdon (A) and Reason (R) are cormect and Reason (R) is the corect explanation of Assertion (A.
Assertion (A) Ls correct but the Reason (R) is not correct.
Both Assertion (A) and Reason (R) are incorrect.
2. Assertion (A): Value of goodwill s subjective and not an exact value.
Reason (R: Goodwill is based on accepted principles of valuation which are time tested. Hence, it is not
subjective.
In the context of above two statements, which of the following is correct?
Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
ASsertion (A.

Both Assertion (A) and Reason (R) are corect and Reason (R) is the corect explanation of Assertion (AV
Assertion (A) is correct but the Reason (R) Is not corect.
Both Assertion (A) and Reason () incorrect. are

3. Assertion (A:
Self-generated Goodwll s recognised in the books of account on reconstitution of a frm
because amount is exchanged between the gaining partner or partners and sacrificing
partner or partners.
Reason (R: According to AS 26, Intangible Assets, Self-generated Goodwill s not recognised in the books
accounts because the value Is not paid for it.
context of above two statements, which of the following is correct?
inthe and Reason
Assertion
Assertion A)
A). ( are correct but the Reason (R) Is not the correct explanation of
Both Assertion (A) and Reason ( are comect and Reason () Is the corect explanation of Assertion (A
Both Assertion (A) and Reason (R) are not correct.
Assertion (A) is not correct but the Reason (R) is correct.
Muitiple Choice Questions MCQ.27
4 Assertion A: Valuation of Goodwll Is necessary at the time of fims reconstitution because gaining
partners have to compensate the sacrificing partners for gaining profit share.
eason (RE Goodwill is an Intangible asset whlch Is recognised In the books of account if an amount is
paid for
In the context
of above two statements, which of the following s correct
ASsertion (A) and Reason (R) are correct but the Reason (R) s not the correct explanation o
Assertion (A).
Both Assertlon (A) and Reason (R) are correct and Reason (R) s the correct explanation of Assertion (A).
OAssertion (A) is correct but the Reason (R) Is not correct.
Both Assertion (A) and Reason (R) are incorrect.
5. Assertion (A: Goodwll is
Intanglble asset and is recognlsed as an asset only when consideration has
an

exchanged hands between two wlling and Independent

persons.
Reason (R: AS 26, Intanglble Assets
prescribes to recognise goodwill as an asset only when consideration
has been pald for lt.
In the context
of above two statements, whlch of the following is corect?
Assertion (A) and Reason (R) are correct but the Reason (R) Is not the correct explanation of
Assertion (A.
O Both, Assertion (A) and Reason (R) are correct and Reason (R) ls the correct explanation of Assertion (A.
Assertion (A) Is correct but the Reason (R) Is not correct.
Both Assertion (A) and Reason () are Incorrect.
6. Assertlon (Aj: Goodwll is a
subjective value under any method because of estimates as to number of
years purchase or return on capital employed.
Reason (R): Number of years purchase means the estimated number of years for which profit is likely to
be earned in future. Thus, it is an estimate. Return on Capital Employed is also an estimate as
to likely return on capltal employed.
In the context of above two statements, which of the following is correct?
Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
Both, Assertion (A) and Reason (R) are corect and Reason (R) is the correct explanation of Assertion (A).
Assertion (A) is correct but the Reason (R) is not correct.
Assertion (A) is not correct but the Reason (R) Is correct.
7. Assertlon (A): Normal business proft Is determined to value
goodwll because goodwill valued is that of
the buslness and therefore, abnormal Incomes and losses are deducted from
or added to
the net profi
Reason (R): Abnormal incomes or losses may or may not happen In future, therefore, they are adjusted.
In the context ofobove two statements, which of the following correct?
Assertion (A) and Reason (R) are correct but the Reason (R) Is not the correct explanation of
Assertion (AA
Both, Assertlon (A) and Reason (R) are correct and Reason (R) Is the correct explanatlon of Assertion (A).
Assertion (A) Is correct but the Reason (R) Is not correct.
OBoth Assertlon (A) and Reason (R) are Incorrect.

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 MCQ.28 An Atd to Accountancy-CBSE XII

8. Assertlon ( : Goodwil by Average Profit Method Is calculated by ascertaining average profit earned
by the firm which Is deducted from expected return on capital employed. The profit so
determined Is multiplled by the number of years purchase
Reason (R The value of Goodwll by Super Profts Method is calculated by ascertalning average profit
earned by the firm which Is deducted from expected return on capital employed. The profit
determined ls multipled by the number of years purchase.
so

in the context of above two statements, which of the

followlng ls correct?
Assertion (A) and Reason (R) are correct but the Reason (R) Is not the correct explanation of
Assertion (A
OBoth, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
Assertion (A) is correct but the Reason (R) Is not correct.
Assertion (A) Is not correct but the Reason (R) is correct.
9. Assertion (A}: Goodwill is valued
on the basis of Normal Business Profit. Normal business
profit is
determined by adding abnormal losses and deducting abnormal profits.
Reason (R: Profit or loss on sale of
bullding is not deducted from or added to net profit because it is an
asset of the firm. Profit or loss sale thereof Is not
on an abnormal profit or loss.
In the context
of above two statements, which of the following is comect?
Assertion (A) and Reason (R) are correct but the Reason (R)) is not thee correct explanation of
Assertion (A).
Both, Assertion (A) and Reason (R) are corect and Reason (R) is the correct explanation of Assertion (A.
Assertion (A) Is correct but the Reason (R) is not correct.
Both Assertion (A) and Reason (R) are incorrect.
10. Assertion (A:
Average business profit of 5 years is 2,35,000 after deducting expense on
20,000 and adding 5,000 Cycle Shed of
deducted to determine Normal
depreciation on the
Cycle Shed. It is correctly added and
Business Profit for that year.
Reason (R): Cost of constructing Cycle Shed is a
Capital Expenditure and therefore should not have been
transferred to the debit of Profit and Loss Account.
Instead, depreciation thereon being an
expense should have been debited to lt.
in the context of above two
statements, which of the following is corect?
Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct
Assertion (A) explanation of

Both, Assertion (A) and Reason (R) are corect and Reason (R) Ls the correct
explanation of Assertion (A).
Assertion (A) is corect but the Reason (R) Is not correct.
Both Assertion (A) and Reason (R) are incorrect.
11. Assertion (A): Value
of Goodwill
calculated on Average Profit Method or Super Profit Method is same.
Reason (R: Value of Goodwill on Profit Method and
Average
basis of valuation Is different Super Profit Method cannot be same as the
In the context
of above two statements, which of the folowing Is correct?
Assertion (A) and Reason (R) are correct but the Reason (R) Is not the correct
Assertion (A). explanation of

6 Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct
explanatlon of Assertion (A).
Both Assertion (A) and Reason (R) are not correct
Assertion (A) is not correct but the Reason (R) is correct.
Multiple Cholce Questions
MCQ29
12.
Assertion (A}i Average Business Profit of a irm s t5,00,o00. Capital employed in the busines5 5
S00,000. " Normal rate of Return is
8%, Super Profit wll be 100000,
Neason
(R Super Profit ls the excess of Average Proflts over the Normal Prafits. Capltal employed s
50,00.000 and 8% Is the expected return, expected norrnal profit will be 4,00,000. SinGE
normal proflt s 5,00,000,
In
Super Proft will be 1,00,000.
the context of obove two
statements, whlch of the following Is correct
Assertion (A) and Reason (R) are correct but the Reason (R) Is not the correct explanation or
Assertion [A).
OBoth, Assertlon (A) and Reason (R) are correct and Reason (R) s the correct
explanation of Assertion A.
OAssertion (A) is correct but the Reason (R) s not
correct.
Both Assertion A) and Reason (R) are Incorrect.
13. Assertlon (A): If the
value of Goodwll valued at 3 years purchase of Average Super Profit is? 3,00,000 and
Rate of Return Is 7% of
Capital Employed, Capital Employed will be t 20,00,000.
profit will be t 240,000. Average
Reason (R):
Capltal employed
Is ? 50,00,000 and 8%ls the
expected return on capital employed,
normal profit will be t 400000.The
value will of Goodwill be expected
t22,50,000, average profit being
more than the
expected return on capltal employed.
In the context of obove two
statements, which of the following s correct?
O Assertion (A) and Reason (R) are correct but the Reason (R) Is not the correct
Assertlon A). explanatlon of

Both, Assertion A) and Reason (R) are corect and Reason (R) ls the correct
explanatlon of Assertion A).
O Assertion (A) is correct but the Reason
(R) is not correct.
Both Assertlon (A) and Reason (R) are Incorrect.
14. Assertion (A):
Capltal Employed in aflrmisR and rate of
50,000. Asaresult, Goodwill 5,00.000 return is 109%. Average
valued at 3 years purchase profit
of the firm s
of Super Profit will be nil whereas
value of Goodwill at three
years purchase of Average
Profit will be ?
1,50,000.
Reason (R):
Super profitis of the firm ls nil
because average profit s7 50,000 and
expected
empioyed 50,000. Since both return capital on
average
super profit is nil. Thus, value of Goodwill profit and Return on Capital Employed Is same,
3
by Super Profit Method ls nil. Value of Goodwill at
years purchase of average profit will be ? 1,50,00(E 50,000 x 3).
In the context
of above two statements, whlch of the following ls correct?
O Assertion (A) and Reason (R) are correct but the
Reason (A) is not the correct
Assertion A). explanatlon of
OBoth, Assertion A) and Reason (R) are correct and Reason (R) is the correct
OAssertion (A) is correct but the Reason (R) Is not correct. explanation of Assertlon A
Both Assertlon (A) and Reason (R) are Incorrect.
15. Assertlon AJ:
Capital Employed In fim ls5,00.000
a
70,000. As a result, and rate of
return is 109%. Average profit of the firm is
Goodwll valued
Whereas value of Goodwll at three
at 3
years purchase of Super Profit wll be 60,000.
years purchase of Average Proflt wll be R 2,10,000.
Reason (R): Super
profltof the firm s
t60,000 because average proft is 70,000, which exceeds expected
return byt 20,000. Value of Goodwill at 3 years
purchase of average profit wll also be R 60,000
( 20,000x 3).
in the context of above two statements, which of the following is correct?
Assertlon (A) and Reason (R)
Assertion (A)
are correct but the Reason (R) 1s not the correct
explanation of
Both, Assertlon (A) and Reason (R) are correct and Reason (R) ls the correct
explanatlon of Assertion (A).
Assertlon (A) Is correct but the Reason (R) Is not correct.
Both Assertlon (A) and Reason (R) are
Incorrect.

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 An Atd to Accountancy-CBSE XII
MCQ.30
is 10%. Net assets of the
is R 3,00,000 and Normal Rate of Return
16. Assertion (A): Average Profit of a firm Profit will be S,00,000.
25,00,000, value of Goodwll by Captalisation of Average
firmare the
Capltalisation of Average Profit, Average Profit is divided by
Reason (R): Goodwll when valued using which net assets are deducted.
rate of return. It glves the value of business from
is comect?
In the context of above two statements, which of the following of Assertion (A.
Both, Assertion (A) and Reason (R) are correct and Reason (R) 1s the correct explanation
and Reason (R) correct but the Reason (R) is not the correct
explanation of
O Assertion (A) are

ASsertion A.

Assertion (A) is correct but the Reason (R) Is not correct.

Both Assertion (A) and Reason (R) are not correct.
17. Assertion (A): Average Profit of a firm is 3,00,000, Capital Employed Is 20,00,000 and Normal Rate of
Return is 10%. Value of Goodwill by Capltalisation of Super Profit is 10,00,000.
Reason (R): Goodwill when valued using Capitalisation of Super Profit, Super Profit is determined by
is
deducting expected return on capital Employed from the Average Profit. Super profit
thereafter multiplied by the inverse of rate of return. Super Profit in this case is i00,000
8,00,000-?2,00,000) which Is multiplied by the inverse of rate of return.
In the contert of above two statements, which ofthe following is corect?
Both, Assertion (A and Reason are correct and Reason (R) is the comect explanation of Assertion
Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A.
Assertion (A) is correct but the Reason (R) is not correct.
Both Assertion (A) and Reason R) are not correct.
18. Assertion (A}: Average Profit of a business is 2,00,000, Assets of the business are 20,00,000 and
Outside Llabilities are 3,60,000 and Normal Rate of Returm is 10%. Value of Goodwill by
Capitalisation of Super Profit is 3,60,000.
Reason (R: Capital employed isR 16,40.000R20,00.00350,000) Nomal Profit is1,64,000 (e 16,40.000x
10%). Actual Average Profit is 2,00,000. Thus, Super Profit is 36,000. Capitalised ft at 10%,
value of Goodwill comes to 3,60,000.
in the context of above two statements, which of the following Is corect?
Both, Assertion (A) and Reason R) are correct and Reason (R) is the correct explanation of Assertion (A).
O Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A
Only Assertion (A) is correct.
Assertion (A) is not corect but the Reason (R) is correct.
19. Assertion (AJ: Average Profit of a business is R2,00,000, Assets of the business 18,00,000 and Outside
are
Liabilities
are 4,00,000 and Normal Rate of Return is 10%.
purchase of Super Profit is T4,20,000. alue of Goodwill at 5 years
Reason (R: Capital employed is 14,00,000 ( 18,00.000- 4,00,000) Nomal Profit is 1,80,000 ( 18,00,000
x109%6). Actual Average Profit is 2,00,000. Thus, Super Profit Is
5years purchase of Super Profit is 1,00,000.
20,000. Value of Goodwillat
In the context of above two statements, which of the following is correct?

Both, Assertion (A) and Reason (R) are comect and Reason (R) is the corect explanation of Assertion (A).
Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertlon (AA
Assertlon (A) is correct but the Reason (R) Is not correct.
Both Assertion (A) and Reason (R) are incorrect.
 Multiple Choice Questions MCQ.31
20. Assertlon (A}:
Net assets of
a firm after
deducting Advertisement Suspense of 50,000are 1000.000.
Outside Liabilities of the firm are t 3,00,0oo. Normal Rate of Return Is 106 and average

profit of the
fim s t Value of Goodwill as
70,000. Capitalisation of Super Profit 5
per
1,00,000.
Reason (R: Capital employed ist 7.00,000 (« 10,00.000- 3,00.00). Normal Profitis 70,.0007.00.000
*095. Actual Average Profit is 70,000. Thus, Super Profit is TNil. Capitalised it at 10%, valuee
of Goodwill comes to t Nil
In the context of above two
statements, whlch of the following Is correct?
Both Asertion( and Reason (M are coiect and Resson (s the corect explarationof Assertion A
Assertion (A) and Reason (R) are correct but the Reason (R) Is not the correct explanation of
Assertion (A).
Assertion (A) is not correct but Reason (R) is correct.
Both Assertion (A) and Reason (R) are incorrect.

Case Study Based Questions

1. Bhanu, Pratap and Pawan are partners in retalil trade of electronic
goods sharing profits equally. Pratap
starteda new business of Departmental Stores and therefore was unable to devote any time to existing
business. Pratap withdrew 2,00,000 out of his capital for investment in new business. All the partners
decided that there was a need to
agree on new terms of partnership.
The decisions taken were as follows:
Future profits will be shared in the ratio of 2:1:2; Monthly salary will be allowed to Bhanu and Pawan of
5,000 each and Interest on Capital @ 59% per annum will be allowed to all the partners
As a result of this change, Goodwill was to be valued for which information as to net profits of the business
for the past five years was made available as tollows:
Year
Profit 70,000 65,.000 80,000 75,000 60,000
Capital investment of the fim is74,00,000. Afalr return on capital in a similar business is 12%. It was agreed
to value Goodwill at three years purchase of Super Profits of past five years.
On the basis of the above information, answer the following:
0 The profit earned by Pratap In the new business
will be shared by all the partners, ie, Bhanu, Pratap and Pawan.
Owill not be shared by all the partners, It being an independent business venture of Pratap
it being in knowledge of other
partners
m a y be shared at the discretion of Pratap.
will be shared because new business ls started with withdrawal of capital from existing business.
i) Average maintainable business profit wll be
60,000. 80,000.
90,000. 70,000.
(i) Normal business proft will be
O 40,000. 48,000.
50,000. 46,000.
v) Value of goodwill of the business will be
76,000. 56,000.
66,000. O 86,000.

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 XI
An Aid to Accountancy-CBSE
MCQ32
2 Amit Aman and Raman are partners sharing profits and losses in the ratio of 2:2:1.On 1st April, 2021
that since
future Amit and Aman demanded
profts equally.
they changed their profit sharing ratio to share Gaining Partner,
should be compensated by Raman, the only
they will be sacrificing their profit share, they
to which he agreed.
the of reconstitution, the firm had assets of t 3,00,000 including
cash of 20,000. The Capital
on date
Accounts of partners totalled 2,40,000 and General Aeserve being
the rest. Normal rate of return n
a

F 96,000 at 4 years purchase

of super protns.
simiar business ls 10%. Goodwill of the firm was valued at

On the basis of above information, choose the correct option to the questions.

(0 Normal Profit of the firm is

O 15,.000. 25,000.
30,000. 20,000.
(i) Average Super Profit will be

15,000. 25,00o.
O 24,000. 20,000.
(i) Average Profit will be

O 50,00o. 52,00o.
60,000.
54,000.
(w) Raman will compensate Amit and Aman by paying Goodwill
8,400 each. 7,400 each.
6,400 each. 5A00 each.
3. Shiv and Mohan are partners for the past 10 years. Due to external factors, ie, pandemic business got
severely affected. Markets being closed and customers not coming to the outlet and also internal factor,
le, partners being not willing to invest further capital, the declsion being affected by uncertain conditions
of pandemic, business has been showing downward trend since last 2 years and net profits or loses in the
last 3years areas follows
2018- 2019-20 2020-21
425,000 1.50.000 125,000(Loss)
They are considering of admitting a partner who can bring capital to meet the funds shortage. They
discussed with Radhe to bea partner who agreed but was of the opinlon that he should not be paying
ary goodwill to get the share. However.Shiv and Mohan were of the opinion that they should get goodwill
since they will be sacrificing their proft share. Thus, they declded to value goodwill by Capitalisation of
Super Profit. Average capital employed in the business is 5,00,000. The rate of return expected from
capital invested is 159%. Management cost ls estimated at 5,000 per month.
On the basis of above information, choose the correct option to the glven questions.
0Goodwill at 3 years purchase of Average Proft will be
1.35,000. 2,70,000.
540,00. 6,00,000.
G) Goodwill at 3 years purchase of Super Profit will be

45,00o. 90,00o.
30,000. 60,000.
(i) Goodwill under Capitalisation of Super Ptoft will be
1,50.000. 2,00,000.
1,00,00. 50,000.

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Multiple Choice Questions MCQ

ANSWERS
Multlple CholceQuestions(MCQs))
(b) 3. (d) 4. (d)

(a) 6. (b) 7. b) 8.

9. (b) 10. (a)

11. (a)
Working Note:
Goodwll T 1,50,000 x 3 =74,50,000.
12. (a)
Working Note:
Average Profit =6,000+*15,000- 8,000+T7,000+10,000&.000
Goodwill T 8,000 x 3 R 24,000
13. (6)
Working Note

Average Profit =00,000-T 90,000)-+R2,40,000+71,20,000) +3,60,000-1,20,000)

3
72,10,000+ 3,60,000+*2,40,000-72,76,000
Goodwill = { 270,000 x 4 =7 10,80,000.

14. (a)
15. (b)
Working Note:
Super Profit = Average Profit Normal Profit
T60,000-7 50,000 ie, 109% of 5,00,00) = T 10,000.
16. (b)
17.
Working Note:

={
Super Profit 60,000- 50,000 =? 10,000
Goodwill = 10,000x 3 =7 30,000.
18. (b)
Working Note:
Average Profit= 18,000+20,000+T22,009T 20,000;
Super Profit =
Average Profit -
Normal Profit
20,000- 6,000 = 7 14,00
Goodwill = 7 14,000 (Super Profit) x 3 =42,000.

19. (b)
Working Note:
4,10,000
Capital Employed = 3,50,000+60,000
?
74,10,000 41,000
Normal Profit= 10% of
Goodwill 7 90,000

Super Profit =

2
= 745,000
Profit
Average Profit =
Normal Profit Super
+

41,000+T 45,000= 86,000.

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 An Ald to Accountancy-CBSE XII
MCQ.34
20. (b)
Worklng Note:
Super Proft = (? 80,000 7 10,000)-7 60,000={ 10,000
Goodwill = 7 10,000 x 2 = ? 20,000.
21. (b)
Workling Note:
Capltal Employed = t85,000-T 5,000-7 30,000- 50.00
Normal Profit 50,000x 5,000

Super Profit= R 8,000 (Average Profit)- 5,000= 3,000

Goodwil Super Profit 100

Normal Rate of Return
22. (c)
3,000 x 10 30,000.
Working Noter
Total Capitallsed Average Profit <100
vaiueNormalRate of Retumn
,20,000x100
15
=78,00,000
Goodwill Total Capitalised Value- Net Assets
= 8,00,000- 8,00,000 = NIL
23. (d)
Working Note:
Capitalised Value = ver e FutureMaintainable Profnts x 100
Normal Rate of Return
=

1,10000 x 11.00.000.
Goodwill Capitalised Value Net Assets (ie., Asset-LIlabilities)
=11,00,000-7 10,00,000 =R 1,00,000.
24. ()
Working Note
Capitalised Value = R60,000x 6,00,000.
Goodwill = 7 6,00,000-T 480,000 7,20,000- 2,40,000)= 1,20,000.
25. a)
Worklng Note:
Capltalised Employed = 14,00,000- 4,00,000 10,00,000.
6. (a)
Working Note:
Super Profit = Average Profit - Normal Proft

= 7 6,00,000- 28,0o,000 T 8,00,o00) 7

100
=
2,.00,00.

=
7 2,00,000 x =
10,00,000.
20
Multiple Choice Questions
MCQ35
27.
Worklng Note:
Caplitalised Value 7 90,000 x
00
9,00,000
Goodwill= Capltallsed
Value Net Assets
-T
9,00,000 ( 2,00,000+ 240,000+7 50,000- 10,000)
=
9,00,000 4,80,000 4,20,000.
28. (6)
29. d)
30. (
Working Note:
() Capital Employed =

Capitals of Partners+ Balance of Current Accounts-Goodwill -Investments

(Non-trade) -

Fictitlous Assets.
GD5,00,000+5,00,000+ 50,000+ 40,000- 50,000 25,000
31. (d) 15,000= 1000.000.
Working Note:
) Capital Employed =
Total Assets Debit
Balances of Current Accounts Bank
Fictitious Assets (Profit and Loss Loan Godwill
Gi) R Account (Debit).
25,00,000 75,000 25,000 8,00,000
32 (b) 1,00,000 15,000= 1485,000.

Assertion-Reason Based Questions

1. (b)
3. (d)
5. 4. (a)
5. (b) 7. b 8. (d)
10. (b) 11.
13. ( 12. b)
14. (b)
15. ( 16. (a)
7. (a) 18. (a) 19. (d) 20.
Case Study Based Questlons
1. 0 (6),Gi) (d), (Gi) (»),
3.
v) () 2. 0c, 6i) te), (i) (c), tiv)
b)
(i) (a)
Goodwill at 3 years' Purchase of
Super Profit
Normal Profit Average Capital Employed x Normal Rate
=
of Returnm
=
R5,00,000 x 15/100 R75,000
Super Profit Average Profit- Normal Profit

T90,000-R 75,000=T 15,000

Goodwill =
Super Profit x3
= 715,000 x3=R45,000.

Capitalisationof Super Profit

Goodwill Super Profit x 100/Normal Rate of Return
= 7 15,000 x 100/15 =
1,00,000.