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12th Accounts Lesson 4

This is about what i have studied in the past

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10 views3 pages

12th Accounts Lesson 4

This is about what i have studied in the past

Uploaded by

su885109
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Very Short Answer Questions

Question 1.
What is goodwill?
Answer:
Goodwill is the good name or reputation of the business which brings
benefit to the business. It enables the business to earn more profit. It is
the present value of a firm’s future excess earnings.

Question 2.
What is acquired goodwill?
Answer:
Goodwill acquired by making payment in cash or kind is called acquired or
purchased goodwill. When a firm purchases an existing business, the
price paid for purchase of such business may exceed the net assets
(Assets – Liabilities) of the business acquired.

Question 3.
What is super profit?
Answer:
Super profit is the excess of average profit over the normal profit of a
business.
Super profit = Average profit – Normal profit.
Average profit is calculated by dividing the total of adjusted actual profit
of certain number of years by the total number of such years. Normal
profit is the profit earned by the similar business firms under normal
conditions.
Normal profit = Capital employed x Normal rate of return Capital
employed = Fixed assets + Current assets – Current liabilities

Question 4.
What is normal rate of return?
Answer:
It is the rate at which profit is earned by similar business entities in the
industry under normal circumstances.

Question 5.
State any two circumstances under which goodwill of a partnership firm is
valued?
Answer:
1. When there is a change in the profit sharing ratio.
2. When a new partner is admitted into a firm.
3. When an existing partner retires from the firm or when a
partner dies.
4. When a partnership firm is dissolved.
III. Short Answer Questions
Question 1.
State any six factors determining goodwill.
Answer:

1. Profitability of the firm.


2. Favourable location of the business enterprise.
3. Good quality of goods or services offered.
4. Tenure of the business enterprise.
5. Efficiency of management.
6. Degree of competition.
7. Other factors.
Question 2.
How is goodwill calculated under the super profits method?
Answer:
1. Purchase of super profit method: Goodwill is calculated by multiplying
the super profit by a certain number of years of purchase.
Goodwill = super profit x No. of years of purchase

2. Annuity method: Value of goodwill is calculated by multiplying the


super profit with the present value of annuity.
Goodwill = Super profit x Present value annuity factor

3. Capitalisation of super profit method: Goodwill = x


100

Question 3.
How is the value of goodwill calculated under the capitalisation method?
Answer:
Capitalisation method:
Under Capitalisation method, goodwill is the excess of capitalised value of
average profit of the business over the actual capital employed in the
business.
Goodwill = Total capitalised value of the business – Actual capital
employed
The total capitalised value of the business is calculated by capitalising the
average profits on the basis of the normal rate of return.

Capitalised value of the business = x 100


Actual capital employed = Fixed assets (excluding goodwill) + Current
assets – Current liabilities

Question 4.
Compute average profit from the following information.
Answer:
Calculation of Average profit:
2016 – ₹ 8,000; 2017 – ₹ 10,000; 2018 – ₹ 9,000

Valuation of goodwill = ₹ 9,000

Question 5.
Calculate the value of goodwill at 2 years purchase of average profit when
average profit is ₹ 15,000.
Answer:
Goodwill: ₹ 30,000

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