MCQs on Goodwill

Goodwill is also known as an intangible asset linked with the acquisition of one business by another. Goodwill is a condition where the purchase payment is higher than the worth of all the intangible and solid visible assets acquired in the possession.

The worth of a firm’s solid customer base, good customer relations, brand name, patents or proprietary technology, and good employee relations are some examples of goodwill.

Given below are important MCQs on Goodwill to analyse your understanding of the topic. The answers are also given for your reference.

Goodwill MCQs:

1. Goodwill is defined as

A) Intangible asset

B) Fictitious asset

C) Current asset

D) Liquid asset

Answer: A

2. Break-even indicates

A) Revenues are more than cost

B) Revenues and cost are equal

C) Costs are more than revenue

D) None of the Above

Answer: B

3. The excess amount which the firm can get on selling its assets over and above the saleable value of its assets is called

A) Surplus

B) Super Profit

C) Reserve

D) Goodwill

Answer: D

4. A firm’s goodwill is not affected by

A) Location of the firm

B) The reputation of the Firm

C) Better Customer Service

D) None of the Above

Answer: D

5. Weighted average method of calculating goodwill is used when

A) Profits are not equal

B) Profits show an increasing or decreasing trend

C) Profits are Fluctuating

D) None of the Above

Answer: B

6. Under the capitalisation method, the formula for calculating the goodwill is

A) Super profits multiplied by the rate of return

B) Average profits multiplied by the rate of return

C) Super profits divided by the rate of return

D) Average profits divided by the rate of return

Answer: C

7. 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 12,00,000. The value of goodwill of the company as per the capitalisation method will be

A) ₹ 82,00,000

B) ₹ 12,00,000

C) ₹ 72,00,000

D) ₹ 42,00,000

Answer: C

8. 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 capitalisation of average actual profit will be

A) ₹ 2,00,000

B) ₹ 10,000

C) ₹ 5,000

D) ₹ 1,00,000

Answer: D

9. When there is a change in the current partners’ association that results in ending the existing agreement and initiate a formation of a new agreement is known as

A) Revaluation of Partnership

B) Reconstitution of Partnership

C) Realisation of Partnership

D) None of the Above

Answer: B

10. X, Y, and Z are partners in a company sharing profits in the ratio 4:3: 2. Their balance sheet as at 31-3-2018 showed a debit balance of Profit and Loss A/c ₹1,80,000. From 1-4-2018 they will share profits equally. In the journal entry to give effect to the above arrangement when X, Y, and Z decide not to close the profit and loss account.

A) Dr X by ₹ 20,000, Cr Z by ₹20,000

B) Cr X by ₹ 20,000, Dr Z by ₹20,000

C) Dr X by ₹ 40,000, Cr Z by ₹40,000

D) Cr X by ₹ 20,000, Dr Z by ₹20,000

Answer: B

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