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Accountancy Test - 12

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Accountancy Test - 12
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Weekly Quiz Competition
  • Question 1
    5 / -1

    Good will of Indian bears, a partnership firm, is ₹ 10,00,000 calculated on 2.5 years’ purchase of average profits of last 3 years.

    What is value of X?

    Solution

    Good will = 25 x Average Profits

    10,00,000 = 2.5 x Average Profits

    Average Profits = ₹ 4,00,000

    Also, Average Profits

    = 7,00,000 + X + 3,00,000 / 3

    Now, comparing (i) and (ii)

    7,00,000 + X + 3,00,000 / 3 = 4,00,000

    10,00,000 + X = 12,00,000

    X = ₹ 2,00,000

  • Question 2
    5 / -1

    Good will can be _______

    Solution

    Good will is purchased when it is acquired by business for consideration in cash or in kind. Goodwill is self-generated when it is emerged as a result of better quality of products and services of a firm over a continuous period of time.

  • Question 3
    5 / -1

    Competency of management does not affect good will.

    Solution

    If management is capable, firm will get higher profits and then higher good will.

  • Question 4
    5 / -1

    When is there no need to value the good will?

    Solution

    There is a need to value goodwill in all the cases given is the options. Goodwill valuation determines the goodwill adjustment to be made with respect to incoming/ outgoing/deceased partner.

  • Question 5
    5 / -1

    Good will calculated by one method is equal to goodwill calculated by any other method.

    Solution

    Good will calculated by one method may differ from goodwill calculated by another method.

  • Question 6
    5 / -1

    As per AS-26, self-generated good will is recorded in the books.

    Solution

    Self-generated goodwill is not recorded in the books because no consideration in money or money’s worth is paid for it.

  • Question 7
    5 / -1

    Non-business incomes are added while calculating average profits.

    Solution

    Non-business incomes are deducted since average profits are calculated to determine the earning capacity of business in normal course of routine business operations.

  • Question 8
    5 / -1

    Read the following case study and answer question on the basis of the same.

    Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows ‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transaction

    Assets

    ₹ 8,000 Creditors ₹ 1,000

    Normal rate of return 10%

    Good will of the firm ₹ 1,000

    Solution

    Good will = Super Profit x Number of Years’ Purchase

    1,000 = Super Profit x 4 Super Profit = ₹250

  • Question 9
    5 / -1

    Machinery replacement fund is transferred to patners’ capital account at the time of change in profit sharing ratio.

    Solution

    Machinery replacement fund is not transferred because it is in the nature of accumulated depreciation and not in nature of accumulated profits.

  • Question 10
    5 / -1

    A and B are partners in a firm sharing profit and losses 2 : 3 with effect from 1st April, 2021, they decided to share profits and loss equally. What will be B’s gain/sacrifice?

    Solution

    B’s sacrifice/gain = Old ratio - New ratio

    3/5 - 1/2 = 1/10

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