# Partnership Goodwill Accounts MCQ

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Partnership Goodwill Accounts MCQ

1. The profits of last five years are Rs.95,000, Rs.90,000, Rs.85,000, Rs.80,000 and Rs.75,000. Find the value of goodwill, if it’s calculated an average profit of last 5 years on the basis of 3 years of purchase:

(a)    Rs.85,000

(b)    Rs.2,55,000

(c)    Rs.2,75,000

(d)    Rs.2,85,000

Profits of last five years = 95,000 +90,000 +85,000 +80,000+ 75,000 = 4.25.000

Average profit – Rs.4,25,000 /5 years = Rs.85,000

Value of goodwill Rs.85,000 x 3 years = Rs.2,55,000. Hence option. (b) is correct.

2. Capital employed in a business is Rs.2, 00,000. Profits are Rs.50, 000 and the normal rate of profit is 20%. The amount of goodwill as per capitalization method will be: /3

(a)    Rs.2,00,000

(b)    Rs.2,50,000

(c)    Rs.40,000

(d)        Rs.50,000

Capitalized value of business =  (Future maintainable profits x 100) / Normal rate. = 50000/(20/100) =.50,000 x (100/20) =Rs.2,50,000

Capital employed = Rs.2,00,000. So, Value of Goodwill = 2,50,000-2,00,000=Rs.50,000

Hence option (d) is correct..

3. A firm has an average profit of Rs.75, 000. Rate of return on capital employed is 12.5% p.a. Total capital employed in the firm was Rs.5, 00,000. Goodwill on the basis of 3 years purchase of super profits is:

(a)    Rs.37,500

(b)    Rs.12,000

(c)    Rs.62,500

(d)    None of the above.

Normal profit=5,00,000 x 12.5/100 = 62,500. So, Super profit = (75,000 – 62,500) = Rs.12,500

At 3 years purchase of super profit, the value of goodwill=12,500 x 3 = Rs.37, 500.

Hence option (a) is correct.

4. P and Q are partners in a firm with capital of Rs.10, 000 and Rs.20, 000. Z was admitted for 1/4th share in profits and brings Rs.15, 000 as capital. Calculate the amount of goodwill:

(a)      Rs.45,000

(b)     Rs.60,000

(c)      Rs.15,000

(d)     None of the above.

Capital of the firm on the basis of Z’s profit sharing ratio:

For 1/4th share of profit capital = Rs.15,000

Total capital of the firm would be  Rs.15, 000 / (1 /4) = Rs.60, 000.

Capital available =10,000 + 20,000 + 15,000 = 45,000. Goodwill = 60,000 – 45,000 = 15,000.

Hence option (c) is correct.

5. Goodwill is to be calculated at 1.5 years of purchase of average profit of last 6 years. Profit earned during the first 3 years is Rs.40, 000, Rs.20, 000 and Rs10, 000 and losses suffered of Rs.4, 000, Rs.1, 000 and Rs.5, 000 in the three years. Goodwill will be: /4

(a)      Rs.10,000

(b)      Rs.15,000

(c)      Rs.20,000

(d)        Rs.25,000

Total Profit =(40, 000 +20, 000=10, 000 = 70000. Total Loss= 4, 000 +1, 000+ 5, 000=10000

So, Net Profit in 6 years = 70000-10000=60000. Average profit – Rs.60,000 /6 = Rs.10,000

So, value of goodwill = Rs.10, 000 x 1.5 yrs. = Rs.15, 000. Hence option (b) is correct.

6. A firm earned total profits of 60,000 during last 3 years The capital investment in the firm is Rs.1, 50,000. Having regarded to risk involved 10% is the fair return on capital employed. Goodwill on the basis of 2 years purchase of average super profits earned during 3 years is:

(a)    Rs.8,000

(b)    Rs.10,000

(c)    Rs.12,000

(d)    Rs.15,000

Capital employed = Rs.1,50,000. Normal Return = 1,50,000 x 10/100 = Rs.15, 000.

Average profit = 60000/3 = Rs.20,000. Super profit = 20,000 – 15,000 = Rs.5,000

Value of Goodwill = Rs.5, 000 x 2 = Rs.10, 000. Hence option (b) is correct.

7. Total profits of last 4 years are:2,60,000. What is the value of goodwill on the basis of 3 years purchase of average profits based on last years?

(a)    Rs.3,44,667

(b)    Rs.1,95,000

(c)    Rs.1,50,000

(d)        None of the above.

Average Yearly profit = 2,60,000 /4 = 65,000. Value of goodwill =65,000 x 3 = 1,95,000. Hence option (b) is correct

8. Capital of A, B and C at the end of year are Rs.70, 000, Rs.50, 000 and Rs.30, 000 Respectively. Net profit was Rs.81, 000. Profit sharing ratio 5:3:1. Find out capitals of A at the beginning of the year is

(a)    25000

(b)    32000

(c)    27000

(d)    None of the above

Capital at the end of year = 70000 + 50000+ 30000 = 150000. Profit during year = 81,000 shared as : A=81000 x 5/9 = 45000, B= 81000 x 3/9 = 27000, C= 81000 / 9 = 9000 So, Capital at beginning  for A = 70000 – 45000 = 25000, B= 50000 – 27000 = 23000 & C= 30000-9000 = 21000. Hence option (a) is correct.

9. X and Y are partners sharing profits and losses in the ratio of 3:2 having the capital of Rs.80,000 and Rs.50,000 respectively. They are entitled to 9% p.a. interest on capital before distributing the profits. During the year firm earned Rs.7,800 before allowing any interest on capital. Profits apportioned among X and Y is:

(a)    Rs.4,680 and Rs.3,120

(b)    Rs.4,800 and Rs.3,000

(c)    Rs.5,000 and Rs.2,800

(d)    None of the above.

Interest on capital =  9% on 1,30,000 = 11700. As the firm does not have sufficient profit to pay interest on capital, no interest on Capital is payable. The profit of 7800 would be divided in the ratio of 3:2. So X will get 7800 x 3/5 =  4680 &  & Y will get 7800 x 2/5 = 3120. Hence option (a) is correct.

10. P and Q are partners with the capital of Rs.25, 000 and Rs.15, 000 respectively. Interest payable on capital is 10% p.a. Find the interest on capital for both the partners when the profits earned by the firm is Rs.2, 400.

(a)    Rs.2,500 and Rs.1,500

(b)    Rs.1,500 and Rs.900

(c)    No interest will be paid to the partners.

(d)    None of the above.

Interest on capital =  10% on 40000 = 4000. As the firm does not have sufficient profit to pay interest on capital, no interest is payable. Hence option (c) is correct.