Important Questions for Chapter 3- Goodwill- Nature and Valuation

Important Questions with Answers for Class 12 CBSE 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 companies amalgamate
  • When a partnership firm is converted into a company

QUESTION 4

What are the methods to evaluate goodwill

Answer: The two methods of evaluating goodwill are.

  • Average Profit Method – (a) Simple average profit method (b) Weighted average profit method
  • Super Profit Method
  • Capitalization Method – (a) Capitalisation of average profit method (b) Capitalization 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 a 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 is a 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
  • Favorable Location
  • Favorable 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
  • Its valuation is subjected assessment of the valuer, is not based on an evidence

QUESTION 11

Give the formula for super profit method.

Answer: The formula for super profit method are

Super Profit= Average Profit – Normal Profit

QUESTION 12

Give the formula for value for goodwill.

Answer: The formula for super profit method are

Goodwill= Weighted Average Profit x Number of years’ purchase

Also Check: TS Grewal Solutions for Goodwill

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