Goodwill MCQ Questions on Super Profits Method- Partnership accounts
This MCQ Test on the super profit method for goodwill valuation has 15 practice questions. Test your knowledge about the partnership accounts - super profit method, meaning of super profits, how to calculate super profits, adjustments made while calculating average profits, Number of years puchase, what are normal profits, what is normal rate of return , how to calculate capital employed etc. The quiz suits well for conceptual clarity for your board exams
CBSE class 12 accountancy MCQ questions
The below MCQ test is designed as per the latest syllabus prescribed by CBSE board. With the rise in weightage of MCQ questions, the practice of MCQ questions becomes very important. The quiz is equally useful for students of CUET exams.
How to attempt the quiz
One by one go through the below questions and select the right option. Do all the questions and in the end press submit. Instantly you will get your score and the explanation against each question. Go through your mistakes and reattempt the quiz any number of times as needed.
MCQ Quiz - Practice Questions
MCQ Quiz
Question 1
The basis of Super Profit Method is that:
D
Correct Answer: Similar capital employed yields different profits for different enterprises
Buyer's advantage lies in higher profit than normal return on capital employed due to firm's reputation.
Net assets represent true business assets excluding non-operational items and external obligations.
Question 4
Both approaches (Liabilities and Assets) for calculating Capital Employed will give:
B
Correct Answer: Same amount
Capital Employed calculated from Balance Sheet by any approach will always be same.
Question 5
Super Profit Method is better than Average Profit Method because:
C
Correct Answer: It considers return on capital employed
Super Profit Method relates profit-earning capacity to capital invested, giving more realistic goodwill value.
Question 6
Normal Profit under super profit method for goodwill valuation is calculated as:
C
Correct Answer: Capital Employed × Normal Rate of Return ÷ 100
Normal profit is what the firm should earn on its capital employed at normal rate of return.
Question 7
If a firm has negative super profit:
D
Correct Answer: The firm has no goodwill
Negative super profit means firm earns less than normal return, indicating no goodwill value.
Question 8
Undervaluation of closing stock in average profit calculation should be:
B
Correct Answer: Added to profit
Undervaluation of stock reduces profit artificially, so it should be added back to determine correct profit.
Question 9
Overvaluation of closing stock in average profit calculation should be:
D
Correct Answer: Deducted from profit
Overvaluation of stock increases profit artificially, so it should be deducted to determine correct profit.
Question 10
For calculating capital employed under super profits method, General Reserve should be:
C
Correct Answer: Added to Partners' Capital
General Reserve is part of owners' equity and represents undistributed profits, hence part of capital employed.
Question 11
The adjustments in Super Profit Method for abnormal items are made in:
C
Correct Answer: Average/Actual profit calculation only
Abnormal items affect profit determination, not capital employed or normal rate of return.
Question 12
Advertisement Suspense (Deferred Revenue Expenditure) is:
D
Correct Answer: Fictitious Asset to be deducted from Capital Employed
Advertisement Suspense is fictitious asset with no realizable value, must be deducted from capital employed.
Question 13
The number of years' purchase in Super Profit Method is:
C
Correct Answer: Agreed by partners
Number of years' purchase is mutually agreed by partners based on expected future benefits.
Question 14
Capital Employed represents:
C
Correct Answer: Capital invested in firm for business operations
Capital Employed means capital actually invested and utilized in business operations to earn profits.
Question 15
If a partnership firm is consistently earnings profits for past many years, the goodwill under Super Profit Method can be
C
Correct Answer: Zero
Even if a firm is consistently earning profits for past many years, still depending upon the profits earned by other similar business, goodwill of a firm can still be zero under super profits method
