Goodwill

Goodwill is an intangible asset. It is an advantage or favor that a business acquires through its good reputation. It is nonphysical but offers long-term value. Moreover, it could be acquired by the acquisition of one business by other.

Goodwill can be divided into two types. One is Purchased goodwill, which comes when an organization is purchased far above its fair value. Another is Inherent goodwill that is internally generated. It comes with time due to a reputation that might be positive or negative.

Here are a few MCQs on goodwill for your better understanding of the topic.

1. Which of the following is definition of goodwill? 

1. 1. Current asset.
   2. Fictitious asset.
   3. Liquid asset.
   4. Intangible asset.

Answer: D

2. When is the method of weighted average for calculating the goodwill is used?

1. 1. When profits are fluctuating.
   2. When the profit is not the same.
   3. When profits show decreasing or increasing trend.
   4. None of the above

Answer: C 

3. What is the formula for calculating the goodwill under the capitalization method?

1. 1. Average profits are divided by the rate of return.
   2. Average profits multiplied by the rate of return.
   3. Super profits multiplied by the rate of return.
   4. Super profits are divided by the rate of return.

Answer: D

4. If a change in partner’s association initiates a formation of a new agreement it is known as

1. 1. The realization of partnership.
   2. Revaluation of partnership.
   3. Reconstitution of partnership.
   4. None of the above.

Answer: C

5. The goodwill of an organization won’t be affected by?

1. 1. Surplus.
   2. Location of the organization.
   3. Super profit.
   4. None of the above.

Answer: D

6. What does break even indicate?

1. 1. Costs are more than revenue.
   2. Revenues are more than cost.
   3. Revenues and costs are equal.
   4. None of the above.

Answer: C

7. The reward an organization receives by selling its assets at a high rate of price beyond its fair value is 

1. 1. Reserve.
   2. Surplus.
   3. Goodwill.
   4. Super profit.

Answer: C

8. What is the formula for calculating goodwill based on Annuity?

1. 1. Super profit multiplied by Annuity value of Re. 1
   2. The number of years’ purchases multiplied by average profit.
   3. Several years’ purchases multiplied by super profit.
   4. Average profit multiplied by annuity value of Re. 1

Answer: A

9. Which of the following types of goodwill are considered to be the best?

1. 1. Cow goodwill.
   2. Rat goodwill.
   3. Dog goodwill.
   4. Cat goodwill.

Answer: D

10. Identify the correct statement

1. 1. Goodwill is a current asset.
   2. Goodwill is a fictitious asset.
   3. Goodwill is a liability.
   4. Goodwill is an intangible asset.

Answer: D

11. Super profit being zero indicates that the actual average profit is less than or equal to the normal profit. State if it is true or false.

1. 1. False.
   2. Partially True.
   3. True.
   4. None of the above.

Answer: C

12. Excess of profits over what is called super profit?

1. 1. Actual, super.
   2. Super, normal.
   3. Super, actual.
   4. Actual, normal.

Answer: D

13. Which goodwill is recorded in the book of accounts as per accounting standard 26?

1. 1. Self-generated.
   2. Purchased.
   3. Both.
   4. None.

Answer: B

14. Is average capital employed taken into consideration while calculating average profit?

1. 1. No.
   2. Yes.
   3. Partially true.
   4. Can’t say.

Answer: A

15. Goodwill helps an organization in bringing what kind of profits?

1. 1. Similar.
   2. Less.
   3. Excess.
   4. No profit at all.

Answer: C

16. State the ones that could be advantageous for an organization in goodwill generation.

1. 1. Patents.
   2. Long-term contracts.
   3. Import licenses.
   4. All of the above.

Answer: D

17. What value would goodwill have if super profit is zero?

1. 1. Negative.
   2. Positive.
   3. Nil.

Answer: C

18. State the feature of goodwill among these

1. 1. Doesn’t affect the organization’s profit.
   2. Fictitious asset.
   3. Invaluable asset.
   4. Difficult to calculate value.

Answer: D 

19. Goodwill needs to be valued when?

1. 1. During admission of a new partner in the organization.
   2. After the death of a partner.
   3. During the retirement of a partner.
   4. All of the above.

Answer: D

20. How is goodwill accounted for in the balance sheet?

1. 1. Is partly shown in the balance sheet.
   2. Not shown in the balance sheet.
   3. Is shown on the balance sheet.
   4. It May or may not be shown on the balance sheet.

Answer: C

21. During the amalgamation of a partnership, the firm is there a need to value goodwill? 

1. 1. No.
   2. Yes.
   3. Can’t say.
   4. Partially true.

Answer: B 

22. Is it true that the competency of management does not affect goodwill?

1. 1. False.
   2. True.
   3. Partially false.
   4. None of the above.

Answer: A 

23. What are the factors that affect goodwill?

1. 1. The efficiency of management.
   2. Technical know-how.
   3. Location of the customers.
   4. All the above

Answer: D

24. Are non-business incomes added while calculating average profit?

1. 1. No.
   2. Yes.
   3. Partially added.
   4. None of the above.

Answer: A

25. What is the formula for calculating goodwill under the super profit method?

1. 1. Super profit divided by normal rate of return.
   2. The number of years purchases multiplied by average profit.
   3. The number of years’ purchases multiplied by super profit.
   4. Super profit minus normal profit.

Answer: C

26. Is it true that goodwill calculated by one method is equivalent to goodwill calculated by other methods?

1. 1. Partially true.
   2. True.
   3. False
   4. Can’t say.

Answer: C

27. In what ways can a business acquire purchased goodwill?

1. 1. By kind.
   2. By cash.
   3. By both cash and kind.
   4. None of the above.

Answer: C

28. Goodwill is classified into

1. 1. Self-generated goodwill.
   2. Purchased goodwill.
   3. Both self-generated & purchased.
   4. None of the above.

Answer: C

29. As per accounting standards 26, which goodwill can be recorded in the book of accounts?

1. 1. Purchased goodwill.
   2. Self-generated goodwill.
   3. Both self-generated & purchased goodwill.
   4. None of the above.

Answer: A

1. What are the methods of valuation of goodwill?
   1. Capitalization of average and super profit method.
   2. Annuity method.
   3. Super profit method.
   4. Average profit method & weighted average profit method.
   5. All of the above-mentioned methods.

Answer: E

31. What is the meaning of super profit?

1. 1. Average profit added to normal profit.
   2. Less than the normal profit.
   3. More than normal profit.
   4. None of the above.

Answer: C

32. What is capital employed?

1. 1. Total assets added to capital.
   2. Total assets equaling liabilities.
   3. Liabilities are deducted from total assets.
   4. Liabilities are deducted from total assets excluding goodwill.

Answer: D

33. Goodwill is considered to be an intangible asset & not a fictitious one because

1. 1. Goodwill has value.
   2. Goodwill can be sold.
   3. Goodwill can be realized.
   4. All of the above-mentioned points.

Answer: D

34. What kind of an account is a goodwill account?

1. 1. Real a/c.
   2. Nominal a/c.
   3. Personal a/c.
   4. Not an a/c.

Answer: C

35. “Goodwill is a thing very easy to describe, very difficult to define. It is the benefit and advantage of a good name, reputation, and connection of a business. It is the attractive force which brings in customers. It is one thing which distinguishes an old-established business from a new business at its start.” Who gave this definition?

1. 1. Lord Eldon.
   2. Lord S.L Paul
   3. Lord Macraughton.
   4. Lord D.Pola.

Answer: C

36. Identify the one that is not concerning goodwill.

1. 1. It has realizable value.
   2. It is an intangible asset.
   3. It is a fictitious asset.
   4. All of these.

Answer: C

37. What is the formula for calculating the profit weighted average?

1. 1. Weighted average profit equals total normal profit divided by the total amount of weights.
   2. Weighted average profit equals average profit minus normal profit.
   3. Weighted average profit equals to total product of profit divided by the number of years.
   4. Weighted average profit equals total products of profit divided by the total amount of weights.

Answer: D

38. What is the formula for the valuation of goodwill based on the capitalization of super profit?

1. 1. Goodwill equals to average profit multiplied by 100 divided by the normal rate of return.
   2. Goodwill equals super profit multiplied by the normal rate of return divided by 100.
   3. Goodwill equals super profit multiplied by 100 divided by the normal rate of return.
   4. Goodwill equals normal profit multiplied by 100 divided by the normal rate of return.

Answer: C

39. What is meant by the number of years purchase?

1. 1. The number of years’ purchase means 12 years of profit.
   2. It means to profit from the past 10 years.
   3. It means the profit that is expected in the next 15 years.
   4. It means for how many years the organization will earn the same amount of profit in the future because of its past efforts.

Answer: D