Fundamentals of partnership and Goodwill Test

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Fundamentals of partnership and Goodwill Test - 10

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Weekly Quiz Competition

Question 1
1 / -0

When the business is taken over by another business, the excess of purchase consideration over its net value asset is referred to as ____.

A
Purchase Goodwill

B
Super Goodwill

C
Average Goodwill

D
Generated Goodwill

Solution

Purchased goodwill is recorded in the books of accounts, when a running business is purchased by another business by paying the extra amount than the actual value of the business. Purchased goodwill is the difference between the value paid for an enterprise as a going concern and the sum of its assets less the sum of its liabilities, each item of which has been separately identified and valued.
Question 2
1 / -0

When a product plays important role in increasing the goodwill of the firm, what factor is mainly responsible for that?

A
Efficiency of Management

B
Quality of product.

C
Favourable Contracts

D
Market Situation

Solution

A firm producing qualitative products can easily have name and fame in the market. This lead to increase in the value of goodwill. The business firms which enjoys good commercial reputation for the quality of their products, they have a high value of goodwill.
Question 3
1 / -0

In the case of going concern when business is not to be sold, it becomes necessary to value goodwill whenever the mutual rights of the partners change. A party which is making a sacrifice must be compensated and that is normally on the basis of ______.

A
Interest

B
Goodwill

C
Profit

D
Loss

Solution

Rule: Debit the Gainer partner and credit the sacrificing partner. Whenever there is reconstitution of partnership the amount of compensation will be equal to the proportionate amount of goodwill.
Question 4
1 / -0

Calculate the average profit of last four year's profits. The profits of the last four years were:

2008

27000

2009

39000

2010

16000(loss)

2011

40000

A
₹40000

B
₹10000

C
₹30000

D
Rs. 22500

Solution

Calculation of average profit when loss is given:
1. Calculation of total profits earned during 4 years:
27,000 + 39,000 – 16,000 + 40,000 = 90,000
2. Average profit = 90,000/4 = 22,500

Question 5

1 / -0

Calculate goodwill at twice the weighted average profits of last four years’ profits. The profits of the last four years were:

2008	37000
2009	29000
2010	26000
2011	40000

Rs. 66600

Rs. 55000

Rs. 55500

Rs. 66000

Solution

Calculation of Goodwill by using Weighted method : Step 1 : Calculation of Total Products :

Profits	Weight	Products
37000	1	37,000
29000	2	58,000
26000	3	78,000
40000	4	1,60,000
Total	10	3,33,000

Step 2 : Calculation of weighted average profit = 3,33,000/10 = 33,300
Step 3 : Goodwill = 33,300 × 2 = 66,600

Question 6
1 / -0

Business showed that the capital employed on January 1, 2007 was Rs. 4,50,000 and the profits for the last five years were as follows: 2007-Rs. 40,000; 2008 -Rs.50,000; 2009- Rs. 60,000; 2010 -Rs. 70,000 and 2011 -Rs.80,000.You are required to find out the value of goodwill, based on three year's purchase of the super profit of the business given that the normal rate of return is 10%.

A
Rs. 42000

B
Rs. 46000

C
Rs. 45000

D
Rs. 40000

Solution

To Calculate the value of goodwill following steps are required:
1. Average Profit = 40,000 + 50,000 + 60,000 + 70,000 + 80,000 = 3,00,000/5 = 60,000
2. Normal Profit = Capital Employed × Rate/100 i.e. 4,50,000 × 10/100 = 45,000
3. Super Profit = 60,000 – 45,000 = 15,000
4. Goodwill = 15,000 × 3 = 45,000
Question 7
1 / -0

A firm earns Rs. 65,000 as its average profits. The usual rate of earning is 10%. The total assets of the firm amounted to Rs. 6,80,000 and liabilities are Rs.1,80,000. Calculate the value of goodwill.

A
Rs.100000

B
Rs.120000

C
Rs.1,50,000

D
Rs.110000

Solution

Calculation of Goodwill:
1. Average profit = Rs.65,000
2. Capital Employed = 6,80,000 – 1,80,000 = 5,00,000
3. Normal Profit = 5,00,000 × 10/100 = 50,000
4. Super Profit = 65,000 – 50,000 = 15,000
5. Goodwill = 15,000 × 100/10 = 1,50,000
Question 8
1 / -0

Verma Brothers earn a profit of Rs. 90,000 with a capital of Rs. 4,00,000. The normal rate of return in the business is 15%. Use Capitalization of super profit method to value the goodwill.

A
Rs.250000

B
Rs. 2,25,000

C
Rs.2,00,000

D
Rs.150000

Solution

Calculation of Goodwill:
1. Average Profit Rs.90,000
2. Normal Profit 4,00,000 × 15/100 = Rs.60,000
3. Super Profit = 90,000 – 60,000 = Rs.30,000
4. Goodwill = 30,000 × 100/15 = Rs.2,00,000
Question 9
1 / -0

A firm earned net profits during the last three years as:

2008-09

Rs.36,000

2009-10

Rs.40,000

2010-11

Rs.44,000

The capital investment of the firm is Rs.1,20,000. A fair return on the capital having regard to the risk involved is 10%. Calculate the value of goodwill on the basis of three year's purchase of the super profit for the last three year.

A
Rs.92000

B
Rs. 70000

C
Rs. 84000

D
Rs.65000

Solution

Calculation of Goodwill by Super Profit Method:
1. Average profit = 36,000 + 40,000 + 44,000 = 1,20,000/3 = 40,000
2. Normal Profit = 1,20,000 × 10/100 = 12,000
3. Super Profit = 40,000 – 12,000 = 28,000
4. Goodwill = 28,000 × 3 = 84,000
Question 10
1 / -0

The average net profits expected of a firm in future are Rs.68,000 per year and capital invested in the business by the firm is Rs.3,50,000. The rate of interest expected from Capital invested in this class of business is 12%. The remuneration of the partners is Estimated to be Rs.8,000 for the year. You are required to find out the super profit.

A
Rs.36000

B
Rs.20000

C
Rs.35000

D
Rs.18000

Solution

Calculation of Super Profit:
Actual Average profit = 68,000 – 8,000 (remuneration) = 60,000
Normal profit = 3,50,000 × 12/100 = 42,000
Super Profit = 60,000 – 42,000 = 18,000

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2008-09	Rs.36,000
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2010-11	Rs.44,000

Fundamentals of partnership and Goodwill Test - 10

Result

Fundamentals of partnership and Goodwill Test - 10

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Question 1

Purchase Goodwill

Super Goodwill

Average Goodwill

Generated Goodwill

Solution

Question 2

Efficiency of Management

Quality of product.

Favourable Contracts

Market Situation

Solution

Question 3

Interest

Goodwill

Profit

Loss

Solution

Question 4

₹40000

₹10000

₹30000

Rs. 22500

Solution

Question 5

Rs. 66600

Rs. 55000

Rs. 55500

Rs. 66000

Solution

Question 6

Rs. 42000

Rs. 46000

Rs. 45000

Rs. 40000

Solution

Question 7

Rs.100000

Rs.120000

Rs.1,50,000

Rs.110000

Solution

Question 8

Rs.250000

Rs. 2,25,000

Rs.2,00,000

Rs.150000

Solution

Question 9

Rs.92000

Rs. 70000

Rs. 84000

Rs.65000

Solution

Question 10

Rs.36000

Rs.20000

Rs.35000

Rs.18000

Solution

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