17 + Interview Questions in GOODWILL IN GENERAL AWARENESS Page 1 InterviewSolution

1.	(Super Profit Method, Undervaluation of Stock). Average profit earned by a firm is Rs. 75,000 which includes undervaluation of stock of Rs. 5,000 on average basis. The capital invested in the business is Rs. 7,00,000 and the normal rate of return is `7%`. Calculate goodwill of the firm on the basis of 5 times the super profit.
Answer» Actual Average Profit - Rs. 75,000 + Rs. 5,000 (undervalued stock) = Rs. 80,000 Normal Profit = Capital Employed (Investment) `xx` Normal Rate of Return/100 ` " " ` = Rs. 7,00,000 `xx` 7/100 = Rs. 49,000 Super Profit = Actual Average Profit - Normal Profit ` " " ` = Rs. 80,000 - Rs. 49,000 = Rs. 31,000 Goodwill = Rs. 31,000 `xx` 5 = Rs. 1,55,000. Note : Undervaluation of stock decreases net profit: Hence, it is added to determine actural average profit.

Discussion

2.	Rajan and Rajani ar partners in a firm. Their capitals were Rajan Rs. 3,00,000, Rajani Rs. 2,00,000. During the year 2018 - 2019, the firm earned a profit of Rs. 1,50,000. Calculate the value of goodwill of the firm by capitalisation of super profit assuming that the normal rate of return is `20%`.
Answer» Correct Answer - Value of Goodwill - Rs. 2,50,000.

Discussion

3.

Vipin agreed to purchase Abhishek’s business. The profits disclosed by Abhishek’s business for last four years were as follows: 2010: Rs. 50,000(including an abnormal gain of Rs. 10,000) 2011: Rs.55,000 (including an income from investments outside the business worth Rs. 5,000) 2012: Rs. 45,000 (after charging an abnormal loss of Rs. 5000) 2013: Rs. 66,000 (excluding Rs. 6,000 as insurance premium on firm’s property – now to be insured) Calculate the value of firm’s goodwill on the basis of three years’ purchase of Average Profits of last four years.

Answer»

Calculation of Average profits

Profit for 2010 (Rs.50,000 – Rs.10,000)	40,000
Profit for 2011 (Rs.55,000 – Rs.5,000)	50,000
Profit for 2012 (Rs.45,000 + Rs.5,000)	50,000
Profit for 2013 (Rs.66,000 – Rs.6,000)	60,000
Total profits for four years	2,00,000

Average profit =(2,00,000/4) = 50,000

Goodwill at 3 Years’ purchase of Average profits = 50,000 x 3 = Rs.1,50,000

Discussion

4.	The capital employed as shown by the books of ABC Ltd is Rs.5,00,000 and the normal rate of return is 10 %. Goodwill is to be calculated on the basis of 3 years’ purchase of super profits of the last four years. Profits for the last four years are:YearProfit2010 Rs.1,00,0002011Rs.1,22,500 2012Rs.74,5002013Rs.54,000
Answer» Total profits for the last four years = 1,00,000 + 1,22,500+ 74,500 + 54,000 = Rs.3,51,000 Average Profits = (3,51,000 / 4) = Rs.87,750 Normal Profits = (5,00,000 x 10/100) = Rs.50,000 Super Profits = Average Profits − Normal Profits = 87,750 – 50,000 = $ 37,750 Goodwill = 37,750 × 3 = Rs. 1,13,250

4.

The capital employed as shown by the books of ABC Ltd is Rs.5,00,000 and the normal rate of return is 10 %. Goodwill is to be calculated on the basis of 3 years’ purchase of super profits of the last four years. Profits for the last four years are:YearProfit2010 Rs.1,00,0002011Rs.1,22,500 2012Rs.74,5002013Rs.54,000

Answer»

Total profits for the last four years = 1,00,000 + 1,22,500+ 74,500 + 54,000 = Rs.3,51,000

Average Profits = (3,51,000 / 4) = Rs.87,750

Normal Profits = (5,00,000 x 10/100) = Rs.50,000

Super Profits = Average Profits − Normal Profits = 87,750 – 50,000 = $ 37,750

Goodwill = 37,750 × 3 = Rs. 1,13,250

Discussion

5.	ABC Ltd earns Rs.40,000 as its average profits. The normal rate of return is 10%. Total assets of the firm are Rs.10,00,000 and its total external liabilities are Rs.5,00,000. Calculate the amount of goodwill:
Answer» Total capitalized value of the firm = 40,000 × 100/10 = Rs.4,00,000 Capital Employed = 10,00,000– 5,00,000 = Rs.5,00,000 Goodwill = 5,00,000 – 4,00,000 = Rs.1,00,000

5.

ABC Ltd earns Rs.40,000 as its average profits. The normal rate of return is 10%. Total assets of the firm are Rs.10,00,000 and its total external liabilities are Rs.5,00,000. Calculate the amount of goodwill:

Answer»

Total capitalized value of the firm = 40,000 × 100/10 = Rs.4,00,000

Capital Employed = 10,00,000– 5,00,000 = Rs.5,00,000

Goodwill = 5,00,000 – 4,00,000 = Rs.1,00,000

Discussion

6.	State whether the following statements are True or False:1. The new ratio of existing partners is calculated by dividing remaining share of the profit in their old profit sharing ratio. 2. No partner can be admitted into partnership firm without the consent of all other partners. 3. When only the share of the new partner is given, then it is assumed that the remaining profit would be shared by the old partners in their old profit sharing ratio.
Answer» 1.True, 2.True, 3.True,

6.

State whether the following statements are True or False:1. The new ratio of existing partners is calculated by dividing remaining share of the profit in their old profit sharing ratio. 2. No partner can be admitted into partnership firm without the consent of all other partners. 3. When only the share of the new partner is given, then it is assumed that the remaining profit would be shared by the old partners in their old profit sharing ratio.

Answer»

1.True,

2.True,

3.True,

Discussion

7.	State whether the following statements are True or False: 1. The ratio in which partners surrender their profits is known as new profit sharing ratio. 2. Sacrificing ratio is calculated by deducting new profit sharing ratio from existing profit sharing ratio.
Answer» 1. False, 2. True,

7.

State whether the following statements are True or False: 1. The ratio in which partners surrender their profits is known as new profit sharing ratio. 2. Sacrificing ratio is calculated by deducting new profit sharing ratio from existing profit sharing ratio.

Answer»

1. False,

2. True,

Discussion

8.	State whether the following statements are True or False:1. Joint Life policy is the insurance policy covering the lives of partners jointly. 2. Surrender value of the Joint Life Policy is the realizable value of policy on the death of a partner. 3. Goodwill is an intangible asset. 4. For goodwill valuation, normal business profits of existing business is considered
Answer» 1. True, 2. False, 3.True, 4.True

8.

State whether the following statements are True or False:1. Joint Life policy is the insurance policy covering the lives of partners jointly. 2. Surrender value of the Joint Life Policy is the realizable value of policy on the death of a partner. 3. Goodwill is an intangible asset. 4. For goodwill valuation, normal business profits of existing business is considered

Answer»

1. True,

2. False,

3.True,

4.True

Discussion

9.	State whether the following statements are True or False:1. For the purpose of goodwill valuation, normal business profit means profits as assessed by income tax officer. 2. Goodwill exists continually with existence of successful business and identified on transfer of ownership in business. 3. Precise value of goodwill is known only when business is sold as whole by negotiation. 4. Normal business profits for goodwill valuation are otherwise of non-trading incomes and expenses.
Answer» 1.False, 2.True, 3.True, 4. True

9.

State whether the following statements are True or False:1. For the purpose of goodwill valuation, normal business profit means profits as assessed by income tax officer. 2. Goodwill exists continually with existence of successful business and identified on transfer of ownership in business. 3. Precise value of goodwill is known only when business is sold as whole by negotiation. 4. Normal business profits for goodwill valuation are otherwise of non-trading incomes and expenses.

Answer»

1.False,

2.True,

3.True,

4. True

Discussion

10.	Fill in the Blanks:When new partner bring his share of goodwill in cash form in the firm then it is taken by old partner in their _______ratio.
Answer» When new partner bring his share of goodwill in cash form in the firm then it is taken by old partner in their Sacrificing ratio.

Discussion

11.	Fill in the Blanks:When goodwill of the firm is evaluated and new partner does not bring his share of goodwill in cash, then goodwill should be adjusted through _________
Answer» When amount of goodwill brought in by new partner is withdrawn by old partners then old partners’ capital account is debited and Bank account is credited.

Discussion

12.	Fill in the Blanks:When Goodwill is paid________ no entry will be made.
Answer» When Goodwill is paid privately no entry will be made.

Discussion

13.	Fill in the Blanks:When goodwill of the firm is evaluated and new partner does not bring his share of goodwill in cash, then goodwill should be adjusted through________
Answer» When goodwill of the firm is evaluated and new partner does not bring his share of goodwill in cash, then goodwill should be adjusted through Partners’ capital accounts,

Discussion

14.	Fill in the Blanks:At the time of admission the goodwill appearing in the books is _______
Answer» At the time of admission the goodwill appearing in the books is Written off.

Discussion

15.	Fill in the Blanks:When new partner is not able to bring goodwill in cash, then new partner’s capital account is________with his/her share of goodwill.
Answer» When new partner is not able to bring goodwill in cash, then new partner’s capital account is debited with his/her share of goodwill.

Discussion

16.	Fill in the Blanks:On admission of a partner, the amount of goodwill existing in the books is written off by debiting the capital account of existing partners in their ________ profit sharing ratio.
Answer» On admission of a partner, the amount of goodwill existing in the books is written off by debiting the capital account of existing partners in their Existing profit sharing ratio.

Discussion

17.	Fill in the Blanks:At the time of admission the amount of goodwill brought by the new partner is _________ to Capital A/c existing partners’ capital.
Answer» At the time of admission the amount of goodwill brought by the new partner is transferred to Capital A/c existing partners’ capital.

Discussion

Explore topic-wise InterviewSolutions in .

Rajan and Rajani ar partners in a firm. Their capitals were Rajan Rs. 3,00,000, Rajani Rs. 2,00,000. During the year 2018 - 2019, the firm earned a profit of Rs. 1,50,000. Calculate the value of goodwill of the firm by capitalisation of super profit assuming that the normal rate of return is `20%`.

ABC Ltd earns Rs.40,000 as its average profits. The normal rate of return is 10%. Total assets of the firm are Rs.10,00,000 and its total external liabilities are Rs.5,00,000. Calculate the amount of goodwill:

State whether the following statements are True or False: 1. The ratio in which partners surrender their profits is known as new profit sharing ratio. 2. Sacrificing ratio is calculated by deducting new profit sharing ratio from existing profit sharing ratio.

Fill in the Blanks:When new partner bring his share of goodwill in cash form in the firm then it is taken by old partner in their _______ratio.

Fill in the Blanks:When goodwill of the firm is evaluated and new partner does not bring his share of goodwill in cash, then goodwill should be adjusted through _________

Fill in the Blanks:When Goodwill is paid________ no entry will be made.

Fill in the Blanks:When goodwill of the firm is evaluated and new partner does not bring his share of goodwill in cash, then goodwill should be adjusted through________

Fill in the Blanks:At the time of admission the goodwill appearing in the books is _______

Fill in the Blanks:When new partner is not able to bring goodwill in cash, then new partner’s capital account is________with his/her share of goodwill.

Fill in the Blanks:On admission of a partner, the amount of goodwill existing in the books is written off by debiting the capital account of existing partners in their ________ profit sharing ratio.

Fill in the Blanks:At the time of admission the amount of goodwill brought by the new partner is _________ to Capital A/c existing partners’ capital.