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Class 12AccountancyPartnership Accounts - Basic ConceptsGoodwillEasy
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The average profit is ₹85,000 and the normal profit is ₹65,000. Goodwill is valued at four years’ purchase. What is the value of goodwill?

Answer and explanation

Correct answer: ₹80,000

Super profit = Average Profit − Normal Profit = ₹85,000 − ₹65,000 = ₹20,000. Goodwill = Super Profit × Years’ Purchase = ₹20,000 × 4 = ₹80,000, so option A is correct. Option B is only the super profit, not the value of goodwill. Exam tip: Under the super profit method, first calculate super profit and then multiply it by the years’ purchase.

Related tags

GoodwillSuper Profit MethodPartnership AccountsPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq
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10 more MCQs
  1. 1What is the basic meaning of goodwill in partnership?
  2. 2How is goodwill classified as an asset in accounting?
  3. 3What effect does a firm's good reputation have on its goodwill?
  4. 4Why is a stable customer base important for goodwill?
  5. 5What is the accounting treatment of purchased goodwill?
  6. 6Why is self generated goodwill generally not recorded in books?
  7. 7How is goodwill calculated under average profit method?
  8. 8The average profit is ₹50,000, and goodwill is valued at two years’ purchase. What is the value of goodwill?
  9. 9The profits for the last three years are ₹30,000, ₹45,000 and ₹60,000, respectively. What is the average profit used for calculating goodwill?
  10. 10The average profit for four years is ₹80,000, and goodwill is valued at three years’ purchase. What will be the value of goodwill?
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