Q. A business has earned average profit of ₹ 4, 00, 000 during the last few years and the normal rate of return in similar business is 10%. Find value of goodwill by:
(i) Capitalisation of Super Profit Method, and
(ii) Super Profit Method if the goodwill is valued at 3 years purchase of super profits.
Assets of the business were ₹ 40, 00, 000 and its external liabilities ₹ 7, 20, 000.

Q. ​A and B , carrying on business in partnership and sharing profits and losses in the ratio of 3 : 2 , require a partner, when their Balance Sheet stood as:

Liabilities		₹	Assets	₹
Creditors		11, 800	Cash	1, 500
As Capital	51, 450		Stock	28, 000
Bs Capital	36, 750	88, 200	Debtors	19, 500
			Furniture	2, 500
			Machinery	48, 500
		1, 00, 000		1, 00, 000

They admit C into partnership and give him 1/8th share in the future profits on the following terms:
(a) Goodwill of the firm be valued at twice the average of the last three years profits which amounted to ₹ 21, 000; ₹ 24, 000 and ₹ 25, 560.
(b) C is to bring in cash for the amount of his share of goodwill.
(c) C is to bring in cash ₹ 15, 000 as his capital.
Pass journal entries recording these transactions , draw out the Balance Sheet of the new firm and state new profit-sharing ratio.

Q. Calculate Inventory Turnover Ratio from the following information:
Opening Inventory ₹ 40, 000; Purchases ₹ 3, 20, 000; and Closing Inventory ₹ 1, 20, 000.
State, giving reason, which of the following transactions would (i) increase, (ii) decrease, (iii) neither increase nor decrease the Inventory Turnover Ratio:
(a) Sale of goods for ₹ 40, 000 (Cost ₹ 32, 000).
(b) increase in the value of Closing Inventory by ₹ 40, 000.
(c) Goods purchased for ₹ 80, 000.
(d) Purchases Return ₹ 20, 000.
(e) goods costing ₹ 10, 000 withdrawn for personal use.
(f) Goods costing ₹ 20, 000 distributed as free samples.

Q.

Explain various methods of valuation of goodwill.

Q.

Formula for calculation of goodwill according to average profits method is:

1. Goodwill = Average Profits X Number of years of purchase

2. Goodwill = Average Profits / Number of years of purchase

3. Goodwill = Average Profits + Number of years of purchase

4. Goodwill = Average Profits - Number of years of purchase

Q.

While calculating goodwill by average profits method, any abnormal income of a year should be ___out of the net profit of that year.

1. deducted

2. multiplied

3. added

4. None of these

Q.

What do you mean by super profit?

Q. From the information given below, calculate Trade Receivables Turnover Ratio:
Credit Revenue from Operations, i.e., Credit Sales ₹8, 00, 000; Opening Trade Receivables ₹1, 20, 000; and Closing Trade Receivables ₹2, 00, 000.
State giving reason, which of the following would increase, decrease or not change Trade Receivables Turnover Ratio:
(i) Collection from Trade Receivables ₹40, 000.
(ii) Credit Revenue from Operations, i.e., Credit Sales ₹80, 000.
(iii) Sales Return ₹20, 000.
(iv) Credit Purchase ₹1, 60, 000.

Q.

Akanksha, Chetna, and Dipanshu are partners in the firm sharing profits and losses in the ratio of 3:2:1. They decide to take Jatin into the partnership for 1/5 share in the future profits. For this purpose, goodwill is to be valued at 2 times the average annual profits of the previous four years. The average profits for the past four years were:

2008 - Rs. 96, 000

2009 - Rs. 60, 600

2010 - Rs. 62, 400

2011 - Rs. 84, 400

Calculate the value of goodwill.

1. Rs. 1, 75, 100

2. Rs. 1, 71, 500

3. Rs. 1, 57, 100

4. Rs. 1, 51, 700

Q.

What is goodwill? What are the factors that effect goodwill?

Q.

Number of years of purchase refers to the number of years the firm will be able to earn _____ in future.

1. None of the above

2. Goodwill

3. Number of years of purchase

4. Average profits

Q.

Profits of last four years are 12, 000, 16, 000, 23, 000, 27, 000 respectively. Calculate goodwill based on average profits of 2 years purchase

1. Debited

2. None of the above

3. Either A or B

4. Credited

Q.

In average profit method, goodwill is calculated on the basis of ___

1. Current years` profits

2. Future years` profits

3. None of the above

4. Past years` profits

Q.

A partnership firm earned net profits during the last 3 years as follows:

2007 - Rs. 1, 90, 000

2008 - Rs. 2, 20, 000

2009 - Rs. 2, 50, 000

Calculate the value of goodwill on the basis of 2 years’ purchase of average profits basis during the above mentioned 3 years.

1. Rs 4, 40, 000

2. Rs 1, 20, 000

3. Rs 2, 20, 000

4. Rs 3, 30, 000

Q. Mandeep, Vinod and Abbas are partners sharing profits and losses in the ratio of 3 : 2 : 1 . From 1st April, 2018, they decided to share profits and losses equally. The Partnership Deed provides that in the event of any change in the profit-sharing ratio, the goodwill shall be valued at three years' purchase of the average profit of last five years . The profits and losses of the past five years are:

Profit$—$Year ended 31st March, 2014$—$₹ 1, 00, 000; 2015$—$₹ 1, 50, 000; 2017$—$₹ 2, 00, 000; 2018$—$₹ 2, 00, 000;
Loss$—$Year ended 31st March, 2016$—$₹ 50, 000.
Pass the journal entries showing the working.

Q.

In an election, the successful candidate registered 5, 77, 500 votes and his nearest rival secured 3, 48, 700 votes. By what margin did the successful candidate win the election?

Q. X, Y and Z are partners. Z gives notice of retirement to, the other partners but does not give public notice of it. W gives credit to the firm without having notice of the change. Can W sue Z if (a) Z is an active partner, (b) Z is a dormant partner (sleeping partner)?

Q. What are the various examples of abnormal profits and abnormal losses that are to be subtracted and added back to the profit respectively while calculating goodwill through average profit method?

Q. ABC are three partners in a firm, they decided to admit D, a fourth partner in the firm with 1/4 share of profit and loss in the firm. Firm decided to revalue the goodwill of the firm on the basis of 3 years purchase of past 4 years average profits. What would be the value of the firm if the past profit of the firm are as under?
2010 Rs. 18, 000
2011 Rs. 21, 000
2012 Rs. 20, 000
2013 Rs.21, 000

1. $Rs.75,000$
2. $Rs.60,000$
3. $Rs.80,000$
4. $Rs.63,000$

Q. Answer briefly the following question:
Give the formula for valuation of goodwill by the Capitalisation of Average Profit Method.

Q.

Average Profits =

1. Total Profits + Number of years

2. Total Profits X Number of years

3. Total Profits/Number of years

4. None of the above

Q. In case of negative super profits do we calculate goodwill? If yes then how?

Q.

What is the treatment for recurring expenses in the average profit method of goodwill valuation? and why ?

Q. Objective Type Question :
Answer in one Sentence only :

Which preference shares are called cumulative preference shares?

Q. What time would be taken into consideration if equal monthly amount is drawn as drawing at the beginning of each month?

1. 7 months
2. 6 months
3. 5 months
4. 6.5 months