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12th Accountancy Monthly Test -2 ( Goodwill in partnership accounts )

St. Britto Hr. Sec. School - Madurai

12th Accountancy Monthly Test -2 ( Goodwill in partnership accounts )-Aug 2020

Time : 2.30 Hours

Part - A

Multiple Choice Question - Answer All Question

Which of the following statements is true?

Goodwill is an intangible asset
Goodwill is a current asset
Goodwill is a fictitious asset
Goodwill cannot be acquired

Identify the incorrect pair

Goodwill under Average profit method - Average profit × Number of years of purchase
Goodwill under Super profit method - Super profit × Number of years of purchase
Goodwill under Annuity method - Average profit × Present value annuity factor
Goodwill under Weighted average profit method - Weighted average profit × Number of years of purchase

When the average profit is Rs.25,000 and the normal profit is Rs.15,000, super profit is

Rs.25,000
Rs.5,000
Rs.10,000
Rs.15,000

Which of the following is true?

Super profit = Total profit / number of years
Super profit = Weighted profit / number of years
Super profit = Average profit – Normal profit
Super profit = Average profit x Years of purchase

Book profit of 2017 is Rs.35,000; non-recurring income included in the profit is Rs.1,000 and abnormal loss charged in the year 2017 was Rs.2,000, then the adjusted profit is

Rs.36,000
Rs.35,000
Rs.38,000
Rs.34,000

The total capitalised value of a business is Rs.1,00,000; assets are Rs.1,50,000 and liabilities are Rs.80,000. The value of goodwill as per the capitalisation method will be

Rs.40,000
Rs.70,000
Rs.1,00,000
Rs.30,000

Part - B

Generic 2 - Answer All Question

A partnership firm has decided to value its goodwill for the purpose of settling a retiring partner. The profits of that firm for the last four years were as follows:
2015: Rs.40,000; 2016: Rs.50,000; 2017: Rs.48,000 and 2018: Rs.46,000
The business was looked after by a partner. No remuneration was paid to him. The fair remuneration of the partner valued at comes to Rs.6,000 per annum.
Find out the value of goodwill, if it is valued on the basis of three years purchase of the average profits of the last four years

The following are the profits of a firm in the last five years:
2014: Rs.4,000; 2015: Rs.3,000; 2016: Rs.5,000; 2017: Rs.4,500 and 2018: Rs.3,500
Calculate the value of goodwill at 3 years purchase of average profits of five years.

The profits and losses of a firm for the last four years were as follows:
2015: Rs.15,000; 2016: Rs.17,000; 2017: Rs.6,000 (Loss); 2018: Rs.14,000
You are required to calculate the amount of goodwill on the basis of 5 years purchase of average profits of the last 4 years.

Part - C

Generic 3 - Answer All Question

How is the value of goodwill calculated under the capitalisation method?

The following particulars are available in respect of a business carried on by a partnership firm:
(a) Profits earned: 2016: Rs.30,000; 2017: Rs.29,000 and 2018: Rs.32,000.
(b) Profit of 2016 includes a non-recurring income of Rs.3,000.
(c) Profit of 2017 is reduced by Rs.2,000 due to stock destroyed by fire.
(d) The stock is not insured. But, it is decided to insure the stock in future. The insurance premium is estimated at Rs.5,600 per annum.
You are required to calculate the value of goodwill on the basis of 2 years purchase of average profits of the last three years.

Calculate the value of goodwill at 2 years purchase of average profit when average profit is Rs.15,000

Compute average profit from the following information.
2016: Rs.8,000; 2017: Rs.10,000; 2018: Rs.9,000

From the following information relating to Arul enterprises, calculate the value of goodwill on the basis of 2 years purchase of the average profits of 3 years.
(a) Profits for the years ending 31st December 2016, 2017 and 2018 were Rs.46,000, Rs.44,000 and Rs.50,000 respectively.
(b) A non-recurring income of Rs.5,000 is included in the profits of the year 2016.
(c) The closing stock of the year 2017 was overvalued by Rs.10,000.

For the purpose of admitting a new partner, a firm has decided to value its goodwill at 3 years purchase of the average profit of the last 4 years using weighted average method. Profits of the past 4 years and the respective weights are as follows:

Particulars 2015 2016 2017 2018

Profit (Rs.) 20,000 22,000 24,000 28,000

Weight 1 2 3 4

Compute the value of goodwill.

Part - D

Generic 5 - Answer All Question

From the following information, find out the value of goodwill by capitalisation method:
(i) Average profit Rs.20,000
(ii) Normal rate of return 10%
(iii) Tangible assets of the firm Rs.2,20,000
(iv) Liabilities of the firm Rs.70,000

From the following information, calculate the value of goodwill under annuity method:
(i) Average profit Rs.14,000
(ii) Normal Profit Rs.4,000
(iii) Normal rate of return 15%
(iv) Years of purchase of goodwill 5
Present value of ` 1 for 5 years at 15% per annum as per the annuity table is 3.352.

From the following information, compute the value of goodwill by capitalising super profit:
(a) Capital employed is Rs.4,00,000
(b) Normal rate of return is 10%
(c) Profit for 2016: Rs.62,000; 2017: Rs.61,000 and 2018: Rs.63,000

From the following details, calculate the value of goodwill at 2 years purchase of super profit:
(a) Total assets of a firm are Rs.5,00,000
(b) The liabilities of the firm are Rs.2,00,000
(c) Normal rate of return in this class of business is 12.5 %.
(d) Average profit of the firm is Rs.60,000

Find out the value of goodwill by capitalising super profits:
(a) Normal Rate of Return 10%
(b) Profits for the last four years are Rs.30,000, Rs.40,000, Rs.50,000 and Rs.45,000.
(c) A non-recurring income of Rs.3,000 is included in the above mentioned profit of Rs.30,000.
(d) Average capital employed is Rs.3,00,000.

The following particulars are available in respect of the business carried on by a partnership firm:
(i) Profits earned: 2016: Rs.25,000; 2017: Rs.23,000 and 2018: Rs.26,000.
(ii) Profit of 2016 includes a non-recurring income of Rs.2,500.
(iii) Profit of 2017 is reduced by Rs.3,500 due to stock destroyed by fire.
(iv) The stock was not insured. But, it is decided to insure the stock in future. The insurance
premium is estimated to be Rs.250 per annum.
You are required to calculate the value of goodwill of the firm on the basis of 2 years purchase of average profits of the last three years.

State any two circumstances under which goodwill of a partnership firm is valued.

What is normal rate of return?

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