Revision Worksheet
Topic: Goodwill: Nature and Valuation Grade: XII
Name: ________________________________ Date:
The term 'Number of Years' Purchase' means
1 (a) The number of years during which the purchaser of Goodwill expects that the profit due to
goodwill are likely to arise in future.
(b) Number of years for which goodwill is purchased.
(c) Number of years for which goodwill purchased will not help the firm in earning similar profits.
(d) None of the above.
2 Total capital employed in the firm is ₹8,00,000, Normal Rate of Return is 15% and profit for the year is
₹1,20,000. Value of goodwill as per Capitalisation Method would be
(a) ₹8,20,000. (b). ₹1,20,000.
(c) Nil (d). ₹4,20,000.
3 M/s. Supertech India has assets of ₹5,00,000, whereas Liabilities are: Partners capitals ₹3,50,000
General Reserve ₹60,000 and Sundry Creditors ₹90,000. If Normal Rate of Return is 10% and Goodwill
of firm is valued at ₹90,000 at 2 years' purchase of Super Profit, the Average Profit of the firm will be
(a) ₹46,000 (b) ₹86,000.
(c) ₹1,63,000 (d) ₹23,000.
4 Information: Capital accounts of partners Naresh and Vikesh were ₹5,00,000 each: Balances in
Current accounts of Naresh and Vikesh ₹50,000 and ₹40,000 respectively; Bank Loan ₹10,00,000;
Goodwill ₹50,000; Investments ₹25,000; Advertisement Suspense ₹15,000. Based on this information,
Capital employed for the purpose of valuation of Goodwill will be:
(a) ₹10,90,000 (b) ₹10,75,000
(c) ₹10,00,000 (d) ₹10,40,000
5 Given below are two statements (in each question), one labelled as Assertion (A) and other labelled
as Reason (R)
Assertion (A): Goodwill is an intangible asset because of which an enterprise is likely to earn higher
profits without putting extra efforts.
Reason (R): Goodwill is an intangible asset as it exists but does not have a physical existence. Also, if
an enterprise enjoys goodwill, it will have repeated customers and will also attract more customers
due to which sales will increase and thus the profits.
In the context of above two statements, which of the following is correct?
(a) Assertion (A) and Reason (R) are correct but the (R) is not the correct explanation of (A).
(b) Both Assertion (A) and Reason (R) are correct and (R) is the correct explanation of (A).
(c) Both Assertion (A) and Reason (R) are not correct.
(d) Assertion (A) is not correct but the Reason (R) is correct.
6 Assertion (A): Self-generated Goodwill is recognised in the books of account on reconstitution of a
firm because amount is exchanged between the gaining partner or partners and sacrificing partner or
partners.
Reason (R): According to A5 26, Intangible Assets, Self-generated Goodwill is not recognised in the b
of accounts because the value is not paid for it.
In the context of above two statements, which of the following is correct?
(a) Assertion (A) and Reason (R) are correct but the (R) is not the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are correct and (R) is the correct explanation of Assertion
(c) Both Assertion (A) and Reason (R) are not correct.
(d) Assertion (A) is not correct but the Reason (R) is correct
3/4 Mark Questions
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7 Purav and Purvi are partners in a firm sharing profits and losses in the ratio of 2: 1. They decide to
take Parv into partnership for 1/4th share on 1st April, 2019. For this purpose, goodwill is to be valued
at four times the average annual profit of the previous four or five years, whichever is higher. The
agreed profits for goodwill purpose of the past five years are:
Year 2019 2020 2021 2022 2023
Profits 14,000 15,500 10,000 16,000 15,000
Calculate the value of goodwill.
8 Parul, Paresh and Rahul are partners in a firm. The firm gave a loan to Rahul on 1st February, 2022 of
₹6,00,000. Interest was agreed to be charged @6% p.a. Interest was paid by cheque up to February,
2023 by Rahul on 5th March, 2023 and balance was yet to be paid by him. Pass the journal entries for
interest on loan to partner
9 Ayub and Amit are partners in a firm and they admit Jaspal into partnership w. e. f. 1st April, 2023.
They agreed to value goodwill at 3 years purchase of Super Profits for which they decided to average
profit of last 5 years. The profit for the last 5 years were:
Year Ended Net profit(₹)
31st March,2019 ₹1,50,000
31st March,2020 ₹1,80,000
31st March,2021 ₹1,00,000 (Including abnormal loss of ₹1,00,000)
31st March,2022 ₹2,60,000 (Including abnormal gain(profit) of ₹40,000)
31st March,2023 ₹2,40,000
The firm has total assets of ₹20,00,000 and Outside Liabilities of ₹5,00,000 as on that date. Normal
Rate of Return in a similar business is 10%. Calculate the value of goodwill.
10 A business has earned average profit of ₹4,00,000 during the last few years and the normal rate of
return in a similar business is 10%. Find the value of goodwill by:
i. Capitalisation of Super Profit Method.
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.
11 Average profit of GS & Co. is ₹50,000 per year. Average capital employed in the business is ₹
3,00,000. If the normal rate of return of capital employed is 10%, calculate goodwill of the firm by:
(i) Super Profit Method at three years' purchase.
(ii) Capitalisation of Super Profit Method.
12 Sumit purchased Amit's business on 1st April, 2023. Goodwill was decided to be valued at two years'
purchase of average normal profit of last four years. The profits for the past four years were:
Year Ended 31st March 2020 31st March 2021 31st March 2022 31st March 2023
Profits ₹80,000 ₹1,45,000 ₹1,60,000 ₹2,00,000
Books of Account revealed that:
(i) Abnormal loss of ₹20,000 was debited to Profit & Loss A/c for the year ended 31st March, 2015.
(ii) A fixed asset was sold in the year ended 31 st March, 2016 and gain (profit) of ₹25,000 was credited
to Profit and Loss Account.
(iii) In the year ending on 31 st March, 2017 assets of the firm were not insured due to oversight.
Insurance premium not paid was ₹15,000. Calculate the value of goodwill.
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