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12th Accountancy - Goodwill In Partnership Accounts Practice Question Paper

Published on: 04/01/2020

Goodwill In Partnership Accounts

Download Tamil Nadu 12th Standard Accountancy question papers, model tests, one-mark questions, important questions, and public exam papers in PDF format. Free study materials and answer keys for TN State Board students.

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Questions:

Generic 3

3 x 3 = 9

Explain the classification of goodwill.

A partnership firm earned net profits during the last three years as follows:
2016 : Rs. 20,000; 2017 : Rs. 17,000 and 2018 : Rs. 23,000
The capital investment of the firm throughout the above mentioned period has been Rs. 80,000. Having regard to the risk involved, 15% is considered to be a fair return on capital employed in the business. Calculate the value of goodwill on the basis of 2 years purchase of super profit.

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 31^st 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.

Generic 2

3 x 2 = 6

Why is goodwill considered as an intangible asset but not a fictitious assets?

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

The following are the profits of a firm in the last five years:
2014: Rs. 10,000; 2015: Rs. 11,000; 2016: Rs. 12,000; 2017: Rs. 13,000 and 2018: Rs. 14,000
Calculate the value of goodwill at 2 years purchase of average profit of five years.

Generic 5

3 x 5 = 15

From the following information, find out the value of goodwill by capitalisation method:
(a) Average profit = Rs. 60,000
(b) Normal rate of return = 10%
(c) Capital employed = Rs. 5,60,000

A partnership firm has decided to value its goodwill for the purpose of setting a retiring Partner. The profit of that firm for the last four years were as follows:
2015 : Rs.20,000; 2016 : Rs.25,000; 2017; Rs.24,000 and 2018: Rs.23,000
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. 3,000 per annum.
Find out the value of goodwill, if it is valued on the basis of three years purchase of the average profit of the last four years.

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.

Multiple Choice Question

4 x 1 = 4

10.

Goodwill is not a ________ asset

(a)

Fixed

(b)

Current

(c)

Fictitious

(d)

None of these

11.

The company earns a net profit of Rs. 24,000 with a capital of Rs. 1,20,000. The NRR is 10% under capitalisation of super profit goodwill will be ___________

(a)

Rs. 70,000

(b)

Rs. 24,000

(c)

Rs. 12,000

(d)

Rs. 1,20,000

12.

The monetary value of such advantage is termed as ____________

(a)

Goodwill

(b)

Bank overdraft

(c)

Capital

(d)

Cash

13.

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

(a)

Rs. 25,000

(b)

Rs. 5,000

(c)

Rs. 10,000

(d)

Rs. 15,000

Odd one out

1 x 2 = 2

14.

Find the odd one out
(a) Average profit method
(b) Straight line method
(c) Super profit
(d) Capitalisation method

Find out the wrong pair

1 x 2 = 2

15.

Find out the wrong pair

a)	Capital	-	Goodwill + current liabilities
b)	Super profit	-	Average profit - Normal profit
c)	Annuity factor	-	\(=\frac { i{ (1+i) }^{ n } }{ { (1+i) }^{ n }-1 } \)
d)	Goodwill	-	\(\frac{super\ profit}{Normal\ rate\ of\ return}\)

One or Two Words / Correct Statement

1 x 1 = 1

16.

(i) Goodwill acquired by making payment in cash or kind is called acquired or purchased goodwill.
(ii) Weighted average profit method, goodwill is calculated by multiplying the weighted average profit by a certain number of years of purchase.
(iii) Normal profit = Capital employed x Fixed assets
(a) (i) is correct
(b) (i) and (ii) are correct
(c) (ii) and (iii) are correct
(d) (i), (ii) and (iii) are correct

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Answers Key:

Generic 3

3 x 3 = 9

Goodwill may be classified into acquired goodwill or self-generated goodwill.
(i) Acquired or purchased goodwill:
(1) Goodwill acquired by making payment in cash or kind is called acquired or purchased goodwill.
(2) The excess of purchase consideration over the value of net assets acquired is treated as acquired goodwill.
(ii) Self - generated goodwill:
It is the goodwill which is self generated by a firm based on features of the business such as favourable location, local customers, etc. Such self-generated goodwill cannot be recorded in the books of accounts.

Average profit \(=\frac{Total\ profit}{Number\ of\ years}\)
\(=\frac{20,000+17,000+23,000}{3}\)
\(=\frac{60,000}{3}\) = Rs.20,000
Normal profit = Capital employed x Normal rate of return
80,000 \(\times\) 15% = Rs. 12,000
Super profit = Average profit - Normal profit
20,000 - 12,000 = Rs. 8,000
Goodwill = Super profit \(\times\) Number of years of purchase
= 8,000 \(\times\) 2 = Rs.16,000
Goodwill = Rs. 16,000

**Calculation of adjusted profit**
Particulars	2016 Rs.	2017 Rs.	2018 Rs.
Profit	46,000	44,000	50,000
Less: Non- recurring income	5,000	-	-
	41,000	44,000	50,000
Less: Over valuation of closing stock	-	10,000	-
	41,000	34,000	50,000
Add: Over valuation of opening stock	-	-	10,000
Profit after adjustments	41,000	34,000	60,000

Tutorial note: Over valuation of closing stock in 2017 will result in over valuation of opening stock in 2018.
Average profit = \(\frac { Total\ profit }{ Number\ of\ year } \)
= \(\frac { 41,000+34,000+60,000 }{ 3 } \)
= \(\frac { 1,35,000 }{ 3 } \) = Rs. 42,000
Goodwill = Average profit \(\times\) Number of years of purchase
= 45,000 × 2
= Rs. 90,000

Generic 2

3 x 2 = 6

Goodwill cannot be seen and touched. It is invisible. Hence it is treated as intangible asset. But it is not a fictitious asset because goodwill has a value and it can be purchased or sold with any other asset.

Goodwill = Average profit x Number of years of purchase
= 15,000 \(\times\) 2
= 30,000
Goodwill: Rs. 30,000

Goodwill = Average profit \(\times\) Number of years of purchase
Average profit \(=\frac{Total\ profit}{Number\ of\ years}\)
\(\frac{10,000+11,000+12,000+13,000+14,000}{5}\)
\(=\frac{60,000}{5}\) = Rs. 12,000
Average profit = Rs. 12,000
Goodwill Average profit \(\times\) Number of years of purchase
12,000 \(\times\) 2 = 24,000
Goodwill = Rs. 24,000

Generic 5

3 x 5 = 15

Total capitalised value of the average profit
\(=\frac{Average\ profit}{Normal\ rate\ of \ return}\times 100\)
\(=\frac{60,000}{10}\times100\)
= Rs.6,00,000
Goodwill= Total capitalised value of the average profit - Capital employed
= 6,00,000 - 5,60,000
= Rs. 40,000

Average profit \(=\frac{Total\ profit}{Number\ of\ years}\)
\(=\frac{20,000+25,000+24,000+23,000}{4}\)
\(\frac{92,000}{4}\)
Average profit =Rs.23,000
Average profit before adjusting fair remuneration of the partner = Rs.23,000
Less:
Fair remuneration of partners =3,000
_____
Average profit =20,000
_____
Goodwill = Average profit x Number of years of purchase
=20,000x3= Rs. 60,000

Calculation of adjusted profit
Particulars	2016 Rs.	2017 Rs.	2018 Rs.
Profit	25,000	23,000	26,000
Less: Non -recurring income	2,500	-	-
	22,500	23,000	26,000
Add: Stock destroyed by fire (abnormal loss)	-	3,500	-
Profit after adjustments	1,30,000	1,20,000	2,30,000

Average profit \(=\frac{Total\ profit}{Number\ of\ years}\)
\(=\frac{22,000+26,000+26,000}{3}\)
\(=\frac{75,000}{3}\) = Rs. 25,000

	Rs.
Average profit before adjusting insurance premium payable in future	25,000
Less: Insurance premium payable in future	250
Average profit	24,750

Goodwill = Average profit \(\times\) Number of years of purchase
= 24,750 \(\times\) 2 = 49,500
Goodwill = Rs. 49,500

Multiple Choice Question

4 x 1 = 4

10.

11.

(d)
Rs. 1,20,000

12.

(a)
Goodwill

13.

Odd one out

1 x 2 = 2

14.

(b) Straight line method
Reason: Under this method, the same amount of depreciation is charged every year throughout the life of the asset other three are methods of valuation of goodwill

Find out the wrong pair

1 x 2 = 2

15.

(a) Capital employed - Goodwill + current liabilities

One or Two Words / Correct Statement

1 x 1 = 1

16.