Goodwill MCQ Questions on Average Profits Method- Partnership accounts
This MCQ Test on the simple average profit method for goodwill valuation has 15 practice questions. Test your knowledge about the partnership accounts - average profit method, how to calculate normal profits, adjustments made while calculating average profits, overvaluation or undervaluation of opening and closing stock, gain or loss on sale of fixed assets, abnormal expenses and abnormal income 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
Under weighted average profit method for goodwill valuation, Weighted Average Profit is calculated as:
A
Correct Answer: Total Weighted Profits ÷ Total Weights
Sum of all weighted profits is divided by sum of all weights to get weighted average profit.
Question 2
While calculating average profits for goodwill valuation, Loss on sale of fixed asset should be:
A
Correct Answer: Added back to profit
Loss on sale of fixed asset is not normal business loss, so added back to determine normal profit.
Question 3
Which goodwill valuation method gives more importance to recent year's performance?
B
Correct Answer: Weighted Average Profit Method
Weighted Average assigns higher weights to recent years, giving them more importance in valuation.
Question 4
Under the goodwill valuation terminology, Future Maintainable Profit is another name for:
A
Correct Answer: Normal Business Profit
Normal Business Profit after adjustments represents profit maintainable in future, hence called Future Maintainable Profit.
Question 5
While calculating average profit for goodwill valuation, Revenue expense wrongly recorded as capital expenditure should be:
B
Correct Answer: Deducted from profit
If revenue expense is capitalized, profit is overstated; hence it should be deducted to correct it.
Question 6
Depreciation wrongly charged on revenue expenditure capitalized should be:
A
Correct Answer: Added back to profit
Excess depreciation charged on wrongly capitalized expense should be added back to correct the profit.
Question 7
The assumption behind Average Profit Method is:
A
Correct Answer: Buyer pays for ability to earn profit in initial years
New business takes time to establish; buyer pays for ready customer base allowing immediate profit earning.
Question 8
Weighted Average Method is particularly effective when profits show:
B
Correct Answer: Rising or falling trend
When profits show clear upward or downward trend, weighted average better reflects future expectations.
Question 9
If a firm has loss in a particular year, while calculating average profit it should be:
B
Correct Answer: Subtracted from total profit
Loss reduces the total profit; it's treated as negative profit when calculating average.
Question 10
For goodwill valuation , Non-business income should be:
B
Correct Answer: Deducted from profit
Non-business income (like rent from non-trade property) is not from core business, hence deducted.
Question 11
The adjustments for goodwill valuation are:
B
Correct Answer: Not made in books, only for valuation
Adjustments for normal business profit calculation are only for valuation purpose, not recorded in books.
Question 12
If insurance premium for future year is to be considered as expense, it should be:
A
Correct Answer: Deducted from profit
Future recurring expenses expected but not yet incurred should be deducted to reflect true maintainable profit.
Question 13
Average Profit Method can be calculated using:
C
Correct Answer: Either Simple or Weighted Average
Average Profit Method allows both Simple Average and Weighted Average approaches based on agreement.
Question 14
The number of years considered for averaging profit is:
B
Correct Answer: As agreed by partners
Number of years for averaging (typically 3-5 years) is decided by mutual agreement among partners.
Question 15
Profit for goodwill valuation means:
A
Correct Answer: Normal business profit only
Only normal business profit (after adjusting abnormal and non-business items) is used for goodwill valuation.
