Gujarat Board GSEB Class 12 Commerce Accounts Important Questions Part 1 Chapter 3 Valuation of Goodwill Important Questions and Answers.

GSEB Class 12 Accounts Important Questions Part 1 Chapter 3 Valuation of Goodwill

Answer the following question in one sentence :

Question 1.
What is the base for the valuation of goodwill ?
Answer:
Profit earning capacity of the business is the main base for the valuation of goodwill.

Question 2.
Which kind of business have goodwill value ?
Answer:
A business unit having its own reputation in the market, having special kind of contacts or having good stable man of customers or having more profit earning capacity then other business units have good goodwill value.

Question 3.
In balance sheet, goodwill is shown on which side and under which heading ?
Answer:
On Assets – Receivables side and under the heading of Non-Current Assets, goodwill is shown in the balance sheet.

Question 4.
Why the value of goodwill is more in older business ?
Answer:
Generally older firm has higher reputation in the market, because majority of the customers are familiar and they have very close terms and relations with the firm. So the value of goodwill is more.

Question 5.
State the circumstances in which valuation of goodwill arises in case of partnership firm.
Answer:
In case of partnership firm in the following circumstances valuation of goodwill takes place :
(i) When changes in profit/ loss ratio takes place, (ii) In case of admission, retirement or death of a partner (iii) When status of the partnership firm changes.

Question 6.
State the methods for the valuation of goodwill .
Answer:
Following are the methods for the valuation of goodwill :

1. Simple average profit method;
2. Weighted average profit method;
3. Capitalization of average profit method;
4. Super profit method.

Question 7.
Give formula of average profit.
Total Profit
Answer:

Question 8.
State the demerits of simple average method of valuation the goodwill.
Answer:
Main demerits is of simple average method of valuation the goodwill are as under :

1. Trend of increase or decrease in profit is ignored.
2. Capital amount invested is not considered.

Question 9.
State under which circumstance weighted average profit method of valuation of goodwill is used ₹
Answer:
When there is continuous increasing trend in profit, weighted average profit method of valuation of goodwill is used.

Question 10.
Give formula to weighted average profit.
Total Weighted Pr ofit
Answer:

Question 11.
Give the formula of goodwill according to weighted average profit method.
Answer:
Goodwill = Weighted average profit × No. of years of purchase.

Question 12.
Give formula of capital employed.
Answer:
Capital Employed = Total Assets – Total External Liabilities.

Question 13.
What is the other name of capital employed ?
Answer:
The other name of capital employed is net assets.

Question 14.
What is super profit ?
Answer:
An additional amount which is in excess of average profit over expected profit is known as super profit.

Question 15.
State the formula for Capitalized profit.
Answer:

Question 16.
State the formula of goodwill under capitalised profit method.
Answer:
Goodwill = Capitalised profit – Capital Employed.

Question 17.
In capitalisation of profit method, if amount of capiotalised profit is same as capital employed or less than it then what it suggest ?
Answer:
In capitalisation of profit method if amount of capitalised profit is same or less that capital employed then that business does not have goodwill.

Question 18.
How is the value of goodwill for monopoly or less competitive type business ?
Answer:
For monopoly or less competitive type business, the value of goodwill is more.

Question 19.
What is expected rate of return ?
Answer:
The return which an investor would expect to receive by investing his money in that business is known as expected rate of return.

Question 20.
What is the meaning of average profit method on the basis of expected rate of return ?
Answer:
On the basis of expected rate of return, average profit method means capitalisation of profit method.

Select the correct answer for each questions :

Question 1.
Which of the following is most important factor for valuation of goodwill ?
(A) Location of Business
(B) Competitiveness of Business
(C) Nature of Business
(D) Maintainable Profit of Business
Answer:
(D) Maintainable Profit of Business

Question 2.
Which of the following factor is not affected to the valuation of goodwill ?
(A) Efficiency of owners of the business
(B) Place of business
(C) Special benefit of business
(D) Place of customer
Answer:
(D) Place of customer

Question 3.
Which of the following factor is affected to the Valuation of goodwill ?
(A) Years of Business
(B) No. of owners
(C) Government
(D) No. of employees
Answer:
(A) Years of Business

Question 4.
When profit amount fluctuates, which method of valuation of goodwill is better ?
(A) Simple average profit method
(B) Weighted average profit method
(C) Capitalization of average profit method
(D) None of the given
Answer:
(A) Simple average profit method

Question 5.
Which points should be considered in the method of weighted average method ?
(A) Less weightage to the profit of recent years
(B) More weightage to the profit of previous years
(C) More weightage to the profit of recent years
(D) Less weightage to the profit of previous years
Answer:
(C) More weightage to the profit of recent years

Question 6.
For business goodwill is an …………….. asset.
(A) Invisible/Intangible
(B) Tangible
(C) Artificial
(D) None of the given
Answer:
(A) Invisible/Intangible

Question 7.
Valuation of goodwill is not possible, if there is in the business.
(A) Profit
(B) Loss
(C) (A) and (B)
(D) None of the given
Answer:
(A) Profit

Question 8.
What is the formula to find out goodwill according to capitalisation of average profit ?
(A) Capitalised profit – Capital employed in business
(B) Capitalised Profit -H Capital employed in business
(C) Capital employed in business – Capitalised profit
(D) Capitalised profit + Capital employed in business
Answer:
(A) Capitalised profit – Capital employed in business

Question 9.
Last 4 years total profit of a firm is ₹ 76,000. What is the value of goodwill if it is calculated on basis of 2 years purchase ?
(A) ₹ 19,000
(B) ₹ 76,000
(C) ₹ 38,000
(D) ₹ 1,52,000
Answer:
(C) ₹ 38,000

Question 10.
Weighted average profit of a firm for last four years is ₹ 45,000. What is the value of goodwill if it is calculated on the basis of weighted average profit of last 2 years purchase ?
(A) ₹ 9,000
(B) ₹ 22,500
(C) ₹ 90,000
(D) ₹ 45,000
Answer:
(C) ₹ 90,000

Question 11.
From the following information determine the value of weighted average profit.

(A) ₹ 50,000
(B) ₹ 48,000
(C) ₹ 1,00,000
(D) 25,000
Answer:
(A) ₹ 50,000

Question 12.
Weighted average profit of last five year of a firm is ₹ 2,70,000; What is the value of goodwill on the basis of weighted average profit of last 3 years ?
(A) ₹ 1,56,000
(B) ₹ 81,000
(C) ₹ 94,000
(D) ₹ 1,35,000
Answer:
(C) ₹ 94,000