Accountancy (055)

Work Sheet-3
Partnership - Goodwill
1. The reward an organization receives by selling its assets at a high rate of price beyond
its fair value is :
(a) Reserve.
(b) Surplus.
(c) Goodwill.
(d) Super profit.
2. When is the method of weighted average for calculating the goodwill is used?
(a) When profits are fluctuating.
(b) When the profit is not the same.
(c) When profits show decreasing or increasing trend.
(d) None of the above

3. Which goodwill is recorded in the book of accounts as per accounting standard 26?
(a) Self-generated.
(b) Purchased.
(c) Both.
(d) None.
4. What is meant by the number of years purchase?
(a) The number of years’ purchase means 12 years of profit.
(b) It means to profit from the past 10 years.
(c) It means the profit that is expected in the next 15 years.
(d) It means for how many years the organization will earn the same amount of profit
in the future because of its past efforts.
5. The total capital employed in the company is 8,00,000 a reasonable rate of return is
15% and the profit of the year is 4,12,00,000. The value of goodwill of the company
as per the capitalization method will be
(a) 82,00,000
(b) 12,00,000
(c) 72,00,000
(d) 42,00,000
6. A firm earns 1,00,000. The normal rate of return is 10%. The assets of the company
amounted to 11,00,000 and liabilities to 1,00,000. Value of goodwill by the
capitalization of average actual profit will be
(a) 2,00,000
(b) 10,000
(c) 5,000
(d) 1,00,000

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7. If super profit are 15,000 and rate of return is 15%, then value of goodwill by
capitalizing the super profit will be:
(a) 15,000
(b) 1,50,000
(c) 10,000
(d) 84,000
8. Match the following:
Column-A Column-B
(i) Old Ratio (a) Ratio in which partners surrender
(ii) Gaining Ratio their share.
(iii) Sacrificing Ratio (b) Ratio before reconstitution of the
firm.
(c) Ratio in which partners acquire
from others.
(a) (i)-(a); (ii)-(b), (iii)-(c).
(b) (i)-(b); (ii)-(c); (iii)-(a).
(c) (iii)-(b); (ii)-(a); (i)-(c).
(d) None of the above.

9. Profits of a firm for the year ended 31st March for the last five years were: Year Ended
31st March, 2015 31st March, 2016 31st March, 2017 31st March, 2018 31st March,
2019 Profits ₹ 20,000 24,000 30,000 25,000 18,000 Calculate the value of goodwill on
the basis of three years’ purchase of Weighted Average Profit after assigning weights
1, 2, 3, 4 and 5 respectively to the profits for years ended 31st March, 2015, 2016, 2017,
2018 and 2019.
10. Calculate the goodwill of a firm on the basis of three years’ purchase of the Weighted
Average Profit of the last four years. The profits of the last four financial years ended
31st March, were: 2016 − ₹ 25,000; 2017 − ₹ 27,000; 2018 − ₹ 46,900 and 2019 − ₹
53,810. The weights assigned to each year are 2016 − 1; 2017 − 2; 2018 − 3; 2019 − 4.
You are supplied the following information: (i) On 1st April, 2016, a major plant repair
was undertaken for ₹ 10,000 which was charged to revenue. The said sum is to be
capitalised for goodwill calculation subject to adjustment of depreciation of 10% on
Reducing Balance Method. (ii) The Closing Stock for the years ended 31st March, 2017
and 2018 were overvalued by ₹ 1,000 and ₹ 2,000 respectively. (iii) To cover
management costs an annual charge of ₹ 5,000 should be made for the purpose of
goodwill valuation.
11. Pooja purchased Ritik’s business on 1st April, 2019. It was agreed to value goodwill at
three year’s purchase of average normal profits of the last four years. The profits of
Ritik’s business for the last four years were:-

Year ended Rs.

31st March, 2016 90,000
31st March, 2017 1,60,000
31st March, 2018 1,80,000
31st March, 2019 2,20,000

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Following are noticed:-

a. During the year ended 31st March, 2016 an asset was sold at a gain (profit) of
Rs. 10,000.
b. During the year ended 31st March, 2017 a machine got destroyed in accident
and Rs. 30,000 was written off as a loss in profit and loss account.
c. During the year ended 31st March 2018, firm’s assets were not insured due to
oversight. Insurance premium being Rs. 10,000.

Calculate the value of goodwill.

12. Anita and Anaya are partners sharing profits in the ratio of 3 : 2. They admit Ashna
into partnership. It was agreed to value goodwill at three year’s purchase on the basis
of weighted average profit for the past 5 years. Weights being assigned to each year
were:-
The profits of 5 years were:-

Year ended Profits

31st March, 2015 1,80,000
31st March, 2016 1,60,000
31st March, 2017 2,50,000
31st March, 2018 3,00,000
31st March, 2019 3,50,000

Book revealed:

a. An abnormal gain of Rs. 20,000 was earned in the year ended 31 st March, 2016.
b. An abnormal loss of Rs. 10,000 was incurred in the year ended 31 st March,
2017.
c. Expense of 50,000 incurred to overhaul a machine on 1 st April, 2017 was
debited to profit and loss account instead of being debited to machinery account.
Depreciation is charged on machinery @20% on written down value method.
d. Closing stock as on 31st March 2018 was undervalued by Rs. 20,000.
13. X sold his business to Y. calculate the value of Goodwill taking into consideration the
following factors:
a) Goodwill is valued at three years purchase of the average profits of the last four yea`
Profits of the last four years were as : year 2009 – `40,000, year 2010 – `58,000, year
2011 – `53,000, year 2012 – `62,000
b) Abnormal loss of `2000 due to theft has reduced the profits of the year 2009.
c) Profits for the year 2010 include abnormal profit `4,000.
d) A speculative and lottery profit of `5,000 was received during the year 2011 which
was included in that year’s profit. e) Profits of the year 2012 were reduced by `10,000
on such a machinery which was destroyed by fire during the year. Calculate the value
of goodwill.
14. The following information relates to a partnership firm: a) Profits / Losses for the last
six years: ` 1st year 20,000(profit) 2nd year 60,000(profit) 3 rd year 10,000(Loss) 4 th

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 year 60,000(profit) 5th year 50,000(profit) 6th year 72,000(profit) b) Average Capital
Employed is `2,00,000. c) Rate of normal profit is 15% Find out the value of goodwill
on the basis of:
i) Four years purchase of average profits.
ii) Four years purchase of super profits.
iii) Capitalization of super profits.
15. On April 1st 2018, an existing firm had assets of `5,00,000 including cash of `20,000.
The firm had a reserve Fund of `90,000, partner’s capital accounts showed a balance of
`3,80,000 and creditors amounted to `30,000. If the normal rate of return is 20% and
the goodwill of the firm is valued at `64,000 at 4 years purchase of super profit. Find
the average profits of the firm.
16. Goodwill of the firm is valued at two years purchase of average profits of the last four
years. The profits of the firm during the last four years are given below:
Year Profit (`)
2013-14 3,50,000
2014-15 4,75,000
2015-16 6,70,000
2016-17 7,45,000
The following additional information is given:
(i) To cover the management cost, an annual charge of ` 56,250 should be made
for the purpose of valuation of goodwill.
(ii) The closing stock for the year ended 31-3-2017 was overvalued by ` 15,000.
Calculate goodwill.

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