MCQs on Valuation of Shares and Goodwill

Valuation of Shares is a process of determining the fair value of a company’s shares. It is done using quantitative methods and the share value will vary depending on the market demand and supply.

Valuation of Goodwill helps to find out the value of a business’s reputation if another company purchases it. It takes into account things like the owner’s reputation, management’s efficiency and the market situation.

Below is a list of multiple-choice questions and answers on the Valuation of Shares and Goodwill to help students understand the topic better.

1. Which of the following methods are used for the valuation of goodwill?
   1. Super profit method
   2. Weighted profit method
   3. Average profit method
   4. All of the above

Answer: d

2. What is the primary purpose for the valuation of shares?
   1. To advance a loan against the security of shares
   2. For purchase of shares by employees where they can retain these shares till the period of their employment
   3. To purchase a block of shares to acquire control in the company
   4. All of the above

Answer: d

3. Which of the following factors is not affecting the goodwill of a company?
   1. The location of a company’s customers
   2. The nature of business
   3. The efficiency of a company’s management
   4. None of the above

Answer: a

4. The formula for calculating goodwill under the simple average profit method is ________.
   1. Goodwill = Super profit * Annuity factor
   2. Goodwill = Super profit * No. of years purchase
   3. Goodwill = Average profit * No. of years purchase
   4. Goodwill = Weighted average profit * No. of years purchase

Answer: c

5. The weighted average method for calculating goodwill should be followed only when __________.
   1. The profits have a decreasing trend
   2. The profits are uneven
   3. The profits have an increasing trend
   4. None of the above

Answer: c

6. The net asset value method for the valuation of shares is based on the assumption that _________.
   1. The company is going to be liquidated
   2. The company is a going concern
   3. Both a and b are incorrect
   4. Both a and b are correct

Answer: a

7. The value of a partly paid equity share is equal to _________.
   1. The value of a fully paid-up share minus the calls unpaid per share
   2. The value of a fully paid-up share divided by the face value of a share
   3. The value of a fully paid-up share
   4. None of the above

Answer: a

8. ________ is the main reason why the intrinsic value of a share is lesser than its market value.
   1. The market is undervaluing the share
   2. The market is overvaluing the share
   3. The share has a low level of risk
   4. The share offers a high dividend payout ratio

Answer: b

9. The market-based methods for the valuation of a share should not be adopted if _______.
   1. The assets of a business are lesser than its liabilities
   2. The company is too small
   3. It becomes difficult to estimate the realisable value of a going concern
   4. There are massive fluctuations in its market price

Answer: d

10. The market value method for the valuation of a share is preferred _________.
    1. When the shares are not listed
    2. When there is a valuation for a division within the company
    3. When the shares of a company are frequently traded in a stock exchange that has nationwide trading
    4. None of the above

Answer: c

11. The amount that is treated as goodwill by a firm is paid for obtaining _______.
    1. Present benefit
    2. Future benefit
    3. Both a and b
    4. None of the above

Answer: b

12. The formula for valuation of equity shares is __________ multiplied by the price-earnings ratio.
    1. Interest per share
    2. Bonus per share
    3. Earnings per share
    4. None of the above

Answer: c

13. The shares appear at _________ in the balance sheet of a company.
    1. Paid-up value
    2. Market price
    3. Adjusted market value
    4. None of the above

Answer: a

14. Which of the following is not essential to calculate the yield value per share?
    1. Super profit
    2. Paid-up value
    3. Normal return rate
    4. Expected return rate

Answer: a

15. For any organisation, goodwill is _______.
    1. A valuable asset
    2. A non-current asset
    3. An intangible asset
    4. All of the above

Answer: d

Also See:

• Difference between Fixed Capital Account and Fluctuating Capital Account
• Difference between Comparative Financial Statement and Common Size Financial Statement