Online Test — Goodwill: Nature and Valuation
15 Questions • 15 min • Chapter MCQ
15:00
Question 1 of 15
Goodwill is the value of a firm's:
Machinery
Reputation / extra earning power
Cash
Debtors
Explanation: Goodwill reflects reputation and extra earning power.
Question 2 of 15
Goodwill is a/an:
Tangible asset
Intangible asset
Fictitious asset
Liability
Explanation: It is an intangible (but real) asset.
Question 3 of 15
Per AS-26, the goodwill recorded in the books is:
Self-generated
Purchased
Both
Neither
Explanation: Only purchased goodwill is recorded.
Question 4 of 15
Which is NOT a factor affecting goodwill?
Location
Management efficiency
The colour of the office
Profit trend
Explanation: Office colour does not affect goodwill.
Question 5 of 15
Average profit method: Goodwill =
Average profit × years' purchase
Average profit ÷ years
Capital × rate
Super profit × rate
Explanation: Goodwill = average profit × years' purchase.
Question 6 of 15
Profits 30,000, 40,000, 50,000; goodwill 2 years' purchase of average. Goodwill =
Rs 80,000
Rs 1,20,000
Rs 40,000
Rs 90,000
Explanation: Average 40,000 × 2 = 80,000.
Question 7 of 15
Normal profit =
Capital employed × normal rate
Average profit × years
Super profit × rate
Sales × margin
Explanation: Normal profit = capital employed × normal rate of return.
Question 8 of 15
Super profit =
Average profit − normal profit
Normal profit − average profit
Average profit × rate
Capital × years
Explanation: Super profit = average profit − normal profit.
Question 9 of 15
Capital employed 5,00,000; rate 10%; average profit 70,000. Super profit =
Rs 20,000
Rs 50,000
Rs 70,000
Rs 30,000
Explanation: Normal 50,000; super = 70,000 − 50,000 = 20,000.
Question 10 of 15
Super profit method: Goodwill =
Super profit × years' purchase
Average profit × years
Normal profit × rate
Capital × rate
Explanation: Goodwill = super profit × years' purchase.
Question 11 of 15
Capitalised value of business = Average profit ×
100 ÷ normal rate
Normal rate
Years
Super profit
Explanation: Capitalised value = average profit × (100 ÷ rate).
Question 12 of 15
Capitalisation of average profit: Goodwill =
Capitalised value − capital employed
Capitalised value + capital
Super profit × years
Average × years
Explanation: Goodwill = capitalised value − capital employed (net assets).
Question 13 of 15
Average profit 60,000; rate 10%. Capitalised value =
Rs 6,00,000
Rs 60,000
Rs 6,000
Rs 600,00
Explanation: 60,000 × 100/10 = 6,00,000.
Question 14 of 15
Capitalisation of super profit: Goodwill = Super profit ×
100 ÷ normal rate
Years
Normal rate
Capital
Explanation: Goodwill = super profit × (100 ÷ rate).
Question 15 of 15
Capital employed =
Assets (excl. goodwill) − outside liabilities
All assets + goodwill
Capital + drawings
Profit × rate
Explanation: Capital employed = assets excluding goodwill less outside liabilities.