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CodeVID-M12-WS
Goodwill: Nature and Valuation — Practice Worksheet
Chapter: Goodwill: Nature and Valuation
Topic: Goodwill: Nature and Valuation
Maximum Marks: 35
Time: 30 minutes
Name: ____________________ Roll No.: __________ Date: ____________

General Instructions

  • All questions are compulsory.
  • Choose the correct option (A, B, C or D) for each question.
  • The answer key is at the end — try the paper first!
Section A — Multiple Choice (1 mark each) 15 × 1 = 15 marks
1.
Goodwill is the value of a firm's:
  • A.Machinery
  • B.Reputation / extra earning power
  • C.Cash
  • D.Debtors
2.
Goodwill is a/an:
  • A.Tangible asset
  • B.Intangible asset
  • C.Fictitious asset
  • D.Liability
3.
Per AS-26, the goodwill recorded in the books is:
  • A.Self-generated
  • B.Purchased
  • C.Both
  • D.Neither
4.
Which is NOT a factor affecting goodwill?
  • A.Location
  • B.Management efficiency
  • C.The colour of the office
  • D.Profit trend
5.
Average profit method: Goodwill =
  • A.Average profit × years' purchase
  • B.Average profit ÷ years
  • C.Capital × rate
  • D.Super profit × rate
6.
Profits 30,000, 40,000, 50,000; goodwill 2 years' purchase of average. Goodwill =
  • A.Rs 80,000
  • B.Rs 1,20,000
  • C.Rs 40,000
  • D.Rs 90,000
7.
Normal profit =
  • A.Capital employed × normal rate
  • B.Average profit × years
  • C.Super profit × rate
  • D.Sales × margin
8.
Super profit =
  • A.Average profit − normal profit
  • B.Normal profit − average profit
  • C.Average profit × rate
  • D.Capital × years
9.
Capital employed 5,00,000; rate 10%; average profit 70,000. Super profit =
  • A.Rs 20,000
  • B.Rs 50,000
  • C.Rs 70,000
  • D.Rs 30,000
10.
Super profit method: Goodwill =
  • A.Super profit × years' purchase
  • B.Average profit × years
  • C.Normal profit × rate
  • D.Capital × rate
11.
Capitalised value of business = Average profit ×
  • A.100 ÷ normal rate
  • B.Normal rate
  • C.Years
  • D.Super profit
12.
Capitalisation of average profit: Goodwill =
  • A.Capitalised value − capital employed
  • B.Capitalised value + capital
  • C.Super profit × years
  • D.Average × years
13.
Average profit 60,000; rate 10%. Capitalised value =
  • A.Rs 6,00,000
  • B.Rs 60,000
  • C.Rs 6,000
  • D.Rs 600,00
14.
Capitalisation of super profit: Goodwill = Super profit ×
  • A.100 ÷ normal rate
  • B.Years
  • C.Normal rate
  • D.Capital
15.
Capital employed =
  • A.Assets (excl. goodwill) − outside liabilities
  • B.All assets + goodwill
  • C.Capital + drawings
  • D.Profit × rate
Section B — Challenge / Olympiad (2 marks each) 10 × 2 = 20 marks
16.
Profits: 2021 Rs 80,000, 2022 Rs 1,00,000, 2023 Rs 1,20,000. Using weights 1, 2 and 3, the weighted average profit is:
  • A.Rs 1,06,667
  • B.Rs 1,00,000
  • C.Rs 1,20,000
  • D.Rs 90,000
17.
A firm's average profit is 90,000; capital employed 6,00,000; normal rate 10%. By the super profit method at 4 years' purchase, goodwill is:
  • A.Rs 1,20,000
  • B.Rs 3,60,000
  • C.Rs 90,000
  • D.Rs 30,000
18.
Why does the super profit method give a lower goodwill than capitalising average profit, other things equal?
  • A.It values only the excess over normal profit, not the whole earning capacity
  • B.It ignores profit
  • C.It uses a higher rate
  • D.They are always equal
19.
Average profit 75,000; normal rate 12.5%; net assets 5,00,000. Goodwill by capitalisation of average profit is:
  • A.Rs 1,00,000
  • B.Rs 75,000
  • C.Rs 6,00,000
  • D.Nil
20.
Super profit 24,000 capitalised at a normal rate of 12% gives goodwill of:
  • A.Rs 2,00,000
  • B.Rs 2,880
  • C.Rs 24,000
  • D.Rs 1,20,000
21.
When recent profits are clearly rising, the most appropriate method is the:
  • A.Weighted average profit method (more weight to recent years)
  • B.Simple average ignoring the trend
  • C.Capital method
  • D.No valuation
22.
While computing average profit, an abnormal LOSS by fire of 20,000 included in one year's profit should be:
  • A.Added back (it is non-recurring)
  • B.Deducted again
  • C.Ignored
  • D.Doubled
23.
A non-trade investment income of 5,000 is included in profit. For goodwill based on TRADING super profit it should be:
  • A.Excluded from profit (and the investment from capital employed)
  • B.Added twice
  • C.Kept in
  • D.Treated as goodwill
24.
Capital employed 8,00,000; normal rate 10%; goodwill (super profit, 3 yrs) is 90,000. The super profit must have been:
  • A.Rs 30,000
  • B.Rs 90,000
  • C.Rs 80,000
  • D.Rs 10,000
25.
Self-generated goodwill is NOT recorded in the books mainly because:
  • A.AS-26 permits recording goodwill only when paid for (purchased)
  • B.It has no value
  • C.It is a liability
  • D.It is illegal to value it

Answer Key

Section A — Multiple Choice (1 mark each)
  1. (B) Reputation / extra earning power
  2. (B) Intangible asset
  3. (B) Purchased
  4. (C) The colour of the office
  5. (A) Average profit × years' purchase
  6. (A) Rs 80,000
  7. (A) Capital employed × normal rate
  8. (A) Average profit − normal profit
  9. (A) Rs 20,000
  10. (A) Super profit × years' purchase
  11. (A) 100 ÷ normal rate
  12. (A) Capitalised value − capital employed
  13. (A) Rs 6,00,000
  14. (A) 100 ÷ normal rate
  15. (A) Assets (excl. goodwill) − outside liabilities
Section B — Challenge / Olympiad (2 marks each)
  1. (A) Rs 1,06,667
  2. (A) Rs 1,20,000
  3. (A) It values only the excess over normal profit, not the whole earning capacity
  4. (A) Rs 1,00,000
  5. (A) Rs 2,00,000
  6. (A) Weighted average profit method (more weight to recent years)
  7. (A) Added back (it is non-recurring)
  8. (A) Excluded from profit (and the investment from capital employed)
  9. (A) Rs 30,000
  10. (A) AS-26 permits recording goodwill only when paid for (purchased)
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