Weighted Average Profits Method

Q.

Meena purchased Simmi's business from 1st April, 2015. The Profits disclosed by Simmi's Business for the last three years were as follows :

Year ending 31st March 2013 - Rs 40, 000 (Including an Abnormal gain of Rs 5, 000)

Year ending 31st March 2014 - Rs 50, 000 (After charging an Abnormal Loss of Rs 10, 000)

Year ending 31st March 2015 - Rs 45, 000 (Excluding Rs 5, 000 as annual Insurance Premium of firm's Property now Insured)

Calculate the Value of firm's goodwill on the basis of 2 years Purchase of the average Profit for the last three years.

Q.

A firm's average profits are Rs 70, 000. It includes an abnormal profit of Rs 5, 000. Capital invested in the business is Rs 5, 50, 000 and the normal rate of return is 10%. Calculate goodwill at four times the super profit.

Q.

Weighted Average Profit =

1. None of these

2. Total weighted Profit X Total weights.

3. Total weighted Profit / Total weights.

4. Total weighted Profit + Total weights.

Q.

A business has earned average profits of Rs 1, 00, 000 during the last few years and the normal rate of return in a similar type of business is 10%. Ascertain the value of goodwill by capitalization of average profit method. Given that the value of net asset of the business is Rs 8, 20, 000.

Q.

P. Ltd. proposed to purchase the business carried on by Mr. A. Goodwill for this purpose is agreed to be valued at three years purchase of the weighted average profits of the past four years.

The appropriate weights to be used are:

2001 - 1

2002 - 2

2003 - 3

2004 -4

The profit for the year as follows:

2001 - Rs 1, 01, 000

2002 - Rs 1, 24, 000

2003- Rs 1, 00, 000

2004- Rs 1, 50, 000

1. Rs 1, 29, 400

2. Rs 1, 71, 500

3. Rs 1, 51, 700

4. Rs 3, 74, 700

Q. A trading firm’s average stock is Rs. 20, 000 (cost). If the stock turnover ratio is 8 times and the firm sells goods at a profit of 20% on sales, ascertain the profit of the firm.

Q. The average profit earned by a firm is Rs.$7,50,000$ which includes overvaluation of stock of Rs. $30,000$ of an average basis. The capital invested in the business Rs. $42,00,000$ and the normal rate of return is $15$. Calculate goodwill of the firm on the basis of $3$ times the super profit.

Q.

The profits of a firm for the last two years are Rs. 45, 000 and Rs.30, 000. What would be the value of goodwill on the basis of 1 years purchase of the weighted average profits ?

1. Rs 45, 000

2. Rs 30, 000

3. Rs 40, 000

4. Rs 50, 000

Q. The amount of goodwill using the weighted average profit method is than the amount computed using the simple average method.

1. lower or higher
2. lower
3. higher
4. equal

Q.

Under weighted average profit method, usually more weightage is assigned to ___

1. None of the above

2. Number of years of purchase

3. Past years`profits

4. Recent years` profits

Q.

While calculating goodwill by weighted average profits methods, total profits multiplied by weights are divided by___

1. Total of weights

2. Total of weights

3. No of years of purchase

4. Total no of years

Q.

The profits of a firm for the year ended 31st March for the last 2 years were as under :

2017 - Rs. 12, 000

2018 - Rs.14, 400

What would be the value of goodwill on the basis of 3 years purchase of the weighted average profits of the last two years, assuming weight of 1 and 2 are assigned to 2017 and 2018 respectively ?

1. Rs 40, 800

2. Rs 13, 600

3. Rs 30, 300

4. Rs 40, 400

Q.

Rajan and Rajani are partners in a firm. Their capitals were : Rajan Rs 3, 00, 000; Rajani Rs 2, 00, 000. During the year ended 31st March, 2016 the firm earned a profit of Rs 1, 50, 000. Calculate the value of goodwill of the firm on the basis of capitalisation of profits assuming that the normal rate of return is 20%.

Q.

In the periods of rising costs, which inventory cost flow method results in a higher cost of goods sold, a lower ending inventory, and a smaller net income?

Q. Original cost of an asset was Rs. $1,00,000$. Life 5 years. Expected salvage value was Rs. 5, 000. Hence Depreciation for 3rd year as per straight line method is ___________.

1. Rs. $8,550$
2. Rs. $20,000$
3. Rs. $19,000$
4. Rs. $26,250$

Q. 'Agrawal Brothers' provide following data:

	Rs
Total Sales	$2,20,000$
S/R	$20,000$
Gross Profit	$50,000$
Closing Stock	$60,000$

Excess of closing stock over opening stock = Rs.$20,000$. What is the 'Stock Turnover ratio'?

1. $5$ times
2. $2$ times
3. $4$ times
4. $3$ times

Q. Weighted average method of calculating goodwill should be followed when ___________.

1. Profits are uneven
2. Profits has increasing trend
3. Profits has decreasing trend
4. Either (B) or (C)

Q. profit method of calculating goodwill is more representative of the future profits and gives a more accurate amount of goodwill.

1. Gross
2. Average
3. Weighted average
4. Actual

Q. Which of the following is not a standard method of inventory valuation?

1. First in First out
2. Standard Cost
3. Average Pricing
4. Realizable Value

Q. Average profit of the firm is Rs.$2,00,000$. Total assets of the firm are Rs.$15,00,000$ whereas Partner's Capital is Rs.$12,00,000$. If normal rate of return in a similar business is $10$ of the capital employed, what is the value of goodwill by Capitalisation of Super Profit?

Q.

Sum of Weighted profits / Sum of weights =

1. Weighted average profits

2. None of the above

3. Average profits

4. Super profits

Q. Original cost = Rs. $1,26,000$. Salvage value $=6,000$. Useful Life $=6$ years. Annual depreciation under SLM = ?

1. Rs. $20,000$
2. Rs $15,000$
3. Rs. $14,000$
4. Rs. $21,000$

Q. Why
simple average profit method is used for the calculation of goodwill ?

Q. The Margin of safety may be defined as

1. The difference between planned sale and break even point sales
2. The point at which break-even point sales are achieved
3. The excess of planned sales over the current actual sales
4. The extent to which sales revenue exceeds fixed costs

Q. Weighted average method of calculating Goodwill is used when
A. Profits are not equal
B. Profits has increasing Trend
C. Profits has decreasing Trend