Important Questions for Chapter 3- Goodwill- Nature and Valuation

Important Questions with Answers for CBSE Class 12 Accountancy Chapter 3- Goodwill- Nature and Valuation which is outlined by expert Accountancy teachers from the latest version of CBSE (NCERT) books.

CBSE Class 12 Accountancy Chapter – 3 Important Questions

QUESTION 1

Define Goodwill.

Answer: Goodwill is an intangible asset which places an enterprise at an advantageous position due to which an enterprise is able to earn higher profits without putting extra effort.

QUESTION 2

Give two features of goodwill.

Answer: The two features of goodwill are

• It is an intangible asset. It does not have any physical existence
• It helps in earning higher profits

QUESTION 3

What is the need for valuation of goodwill?

Answer: The need for valuation of goodwill arises.

• When there is a change in the profit-sharing ratio
• When a new partner is admitted
• When a partner retires or dies
• When a partnership firm is sold as a going concern
• When two or more firms/partners amalgamates
• When a partnership firm is converted into a company

QUESTION 4

What are the methods to evaluate goodwill

Answer: The methods of evaluating goodwill are:

• Average Profit Method – (a) Simple average profit method (b) Weighted average profit method
• Super Profit Method
• Capitalisation Method – (a) Capitalisation of average profit method (b) Capitalisation of super profit.

QUESTION 5

What is purchased goodwill?

Answer: Purchased goodwill is that goodwill which is acquired by a firm for a consideration, whether paid in cash or kind.

QUESTION 6

What is self-generated goodwill?

Answer: Self-generated goodwill is the goodwill which is not purchased for consideration but is earned by the efforts of the management or partners.

QUESTION 7

What is super profit method?

Answer: When a buyer’s advantage lies in the excess of the normal return capital employed. The excess of actual/average profit over normal profit is known as super profit method.

QUESTION 8

What are the factors that affect the value of goodwill?

Answer: The factors that affect the value of goodwill are.

• Efficient Management
• Favourable Location
• Favourable Contracts
• Advantage of Patent
• Market Situation
• Nature of Business

QUESTION 9

State two features of purchased goodwill.

Answer: The two features of purchased goodwill are:

• It arises on the purchase of a business
• It is shown in the Balance Sheet as an asset

QUESTION 10

State two features of self-generated goodwill.

Answer: The two features of self-generate goodwill are:

• It is generated internally, generally over the years
• Self generated goodwill is not recorded in the books of accounts

QUESTION 11

Give the formula for super profit method.

Answer: The formula for super profit method is:

Super Profit= Average maintainable profits – Normal Profit

QUESTION 12

Show how super profit method is used to calculate goodwill.

Answer: The formula for super profit method is:

Super Profit = Average maintainable profits – Normal Profit

Now, goodwill can be calculated as:

Goodwill= Super Profit x Number of years’ purchase

Also Check: TS Grewal Solutions for Goodwill

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