Valuation of Goodwill & Shares – Corporate and Management Accounting MCQBy CACSMockTest / November 24, 2022 0 Valuation of Goodwill & Shares – Corporate and Management Accounting MCQ 1 / 49 Total assets of X Ltd. are ₹ 5,00,000 and total liabilities are ₹ 2,00,000. The company has three types of equity shares:36,000 shares of ₹ 10 each fully paid-up18,000 shares of ₹ 10 each, ₹ 8 paid up.30,000 shares of ₹ 5 each, ₹ 5 paid up.The company has earned ₹ 2,94,300 as profit after tax, which can be considered to be normal for the company. AverageEPS for a fully paid share of ₹ 10 of a Company in the same industry in ₹ 2.Value per share on EPS basis of 30,000 shares of 10 each, ₹ 5 paid-up is – (A) ₹ 22.5 per share (B) ₹ 11.25 per share (C) ₹ 18 per share (D) ₹ 17.5 per share 2 / 49 Total assets of X Ltd. are ₹ 23,00,000 and total liabilities are ₹ 12,00,000. Expert valued goodwill of the company at ₹ 6,50,000. The company has two types of equity shares:25.000 shares of ₹ 10 each fully paid-up25.000 shares of ₹ 5 each, ₹ 3 paid-up.Intrinsic value per share of ₹ 3 paid- up is: (A) ₹ 22 per share (B) ₹ 8 per share (C) ₹ 6 per share (D) ₹ 4 per share 3 / 49 The profit available for equity share-holder of JK Ltd. is ₹ 1,27,500. The company has two types of equity shares:50,000 shares of ₹ 10 each fully paid-up50,000 shares of 10 each, ₹ 7 paid up.Other companies in the same industries pay dividends @ 20%.Yield value per share of ₹ 7 paid-up share is – (A) 4.50 per share (B) 6.25 per share (C) 5.25 per share (D) 3.50 per share 4 / 49 Total assets of X Ltd. are ₹ 10,00,000 and total liabilities are ₹ 4,00,000. Expert valued goodwill of the company at ₹ 2,00,000. The company has two types of equity shares:50,000 shares of ₹ 10 each fully paid-up50,000 shares of ₹ 10 each, ₹ 7 paid up.Intrinsic value per share of ₹ 7 paid- up is: (A) ₹ 3.5 (B) ₹ 4.5 (C) ₹ 6.5 (D) ₹ 7.5 5 / 49 Compute the amount of goodwill based on 3 years purchase of super profit from the following:Future maintainable profit after tax: ₹ 15,00,000;Normal pre-tax rate of return: 20%;Capital employed: ₹ 60,00,000; Tax rate: 30% (A) ₹ 12,30,000 (B) ₹ 21,40,000 (C) ₹ 19,80,000 (D) ₹ 14,70,000 6 / 49 From the following particulars, calculate goodwill on the basis of 3 years purchase of super-profits:Capital employed: ₹ 50,000Trading profit (after tax): 2011: ₹ 12,2002012: ₹ 15,0002013: ₹ 2,000 (loss)2014: ₹ 21,000The normal rate of interest on investment 10% p.a. Remuneration from alternative employment: ₹ 3,600 p.a. (included in above profit). (A) ₹ 10,250 (B) ₹ 8,850 (C) ₹ 7,450 (D) ₹ 12,350 7 / 49 The average net profit of a business as adjusted for valuation of goodwill amounted to ₹ 2,35,000. Net tangible assets employed were of the value of ₹ 4,50,000. But upon valuation, they amounted to ₹ 15,00,000. Assuming that 10% represented a fair commercial return, the value of goodwill by capitalizing super-profits will be___ (A) ₹ 8,75,000 (B) ₹ 8,25,000 (C) ₹ 8,90,000 (D) ₹ 8,50,000 8 / 49 The average net profit before adjustments is ₹ 5,14,000. Profit includes interest at 8% on non-trading investments. The cost of these investments is ₹ 1,98,200 while the face value is ₹ 2,00,000. Expenses amounting to ₹ 7,000 per annum are likely to be discontinued in the future. The provision for income tax to be made at 30%. The normal rate of return may be taken at 10%. The average capital employed in the business (including investments) is ₹ 18,98,200. Assuming 4 years purchase of super-profits, what is the value of goodwill? (A) ₹ 7,43,000 (B) ₹ 8,34,000 (C) ₹ 7,34,000 (D) ₹ 8,43,000 9 / 49 Profit after tax of Z Ltd. for the 3 financial years are as follows: 2013 ₹ 4,41,000 2014 ₹ 6,45,000 2015 ₹ 4,80,000Capital employed is ₹ 29,25,000. The normal rate of return is 10%. The tax rate is 40%. 10% of profits for the year 2014 arose from a transaction of non-recurring nature. A provision of ₹ 31,500 on sundry debtors was made in the financial year 2005 which is no longer required. A claim of ₹ 16,500 is to be provided against profit for the year 2015. Goodwill may be calculated at 3 times adjusted average profits of 3 years. (A) ₹ 6,33,000 (B) ₹ 15,10,500 (C) ₹ 7,22,667 (D) ₹ 15,50,100 10 / 49 The following information is available for N Ltd.:Capital employed is ₹ 5,40,000. A standard rate of return on capital employed in this type of business is 12%. The above net profit included a fixed income on non-trading investment of ₹ 8,000 per year. At the end of the year, 2008-2009 closing stock was overvalued by ₹ 25,000. Calculate goodwill on a weighted average super profit basis at 3 years of purchase. Ignore taxation. (A) ₹ 2,74,671 (B) ₹ 2,47,671 (C) ₹ 2,74,167 (D) ₹ 2,47,716 11 / 49 Profits & losses for the last years are:2011- 2012 Losses ₹ 10,0002012- 2013 Losses ₹ 2,5002013- 2014 Profits ₹ 98,0002014- 2015 Profits ₹ 76,000The average capital employed in the business is ₹ 2,00,000. The rate of interest expected from capital invested is 12%. The remuneration of partners is estimated to be ₹ 1,000 per month. Calculate the value of goodwill on the basis of four years purchase of super-profits based on the annuity of the four years. Take discounting rate as 10%. (A) ₹ 13,500 (B) ₹ 13,568 (C) ₹ 13,668 (D) ₹ 13,868 12 / 49 The net profits after tax of NZ & Co. for the past 3 years are as follows: Year Profit (₹) 2010-2011 20,000 2011-2012 2,61,000 2012-2013 3,12,000Closing stock for 2011-2012 and 20122013 includes the defective items of ₹ 22,000 and ₹ 62,000 respectively which were considered as having no market value. Calculate goodwill on the average profit method. (A) ₹ 2,37,000 (B) ₹ 1,77,000 (C) ₹ 1,37,000 (D) ₹ 1,73,000 13 / 49 The following particulars are available in respect of the business carried on by X Ltd.:You are required to compute the value of goodwill on the basis of 5 years purchase of average profit. (A) ₹ 1,25,000 (B) ₹ 1,50,000 (C) ₹ 10,000 (D) ₹ 1,20,000 14 / 49 The net profits after tax of Z Ltd. for the past 5 years are as follows: Year Profit 2007-2008 2,56,000 2008-2009 2,64,000 2009-2010 3,76,000 2010-2011 4,86,000 2011-2012 5,30,500The capital employed is ₹ 16,00,000. The rate of normal return is 15%. Calculate the value of the goodwill on the basis of the annuity method on a super-profits basis, taking the present value of an annuity of ₹ 1 for the 4 years at 15% as ₹ 2.855. (A) ₹ 7,65,000 (B) ₹ 8,67,800 (C) ₹ 5,70,000 (D) ₹ 4,06,838 15 / 49 Find the goodwill from the following information:Capital employed – ₹ 8,25,000Rate of normal return – 10%Future Maintainable profit – ₹ 1,50,000Annuity factor – 3.17 (A) ₹ 4,75,500 (B) ₹ 2,61,525 (C) ₹ 3,13,975 (D) ₹ 2,13,975 16 / 49 A company has a total capital investment of ₹ 3,60,000. The company earned net profit during the last four years as ₹ 56,000, ₹ 64,000, ₹ 96,000 & ₹ 80,000. The fair return on the net capital employed is 15%. Value of goodwill if it is based on 3 years purchase of the average super-profits of past 4 years. (A) ₹ 37,500 (B) ₹ 50,000 (C) ₹ 60,000 (D) ₹ 40,000 17 / 49 The profits for 2016-2017 is ₹ 2,000; for 2017-2018 is ₹ 26,100 and for 20182019 is ₹ 31,200. Closing stock for 2017-2018 and 2018-2019 includes the defective items of ₹ 2,200 and ₹ 6,200 respectively which were considered as having market value nil. Calculate goodwill on the average profit method. (A) ₹ 23,700 (B) ₹ 17,700 (C) ₹ 13,700 (D) ₹ 17,300 18 / 49 The average profit of a firm is ₹ 1,20,000. The rate of capitalization is 12%. Assets and liabilities of the company are ₹ 10,00,000 & ₹ 4,25,000 respectively. (A) ₹ 3,25,000 (B) ₹ 2,25,000 (C) ₹ 5,25,000 (D) ₹ 4,25,000 19 / 49 Find the goodwill of the firm using the capitalization method from the following information:Capital employed = ₹ 4,80,000.Rate of normal return = 15%.Profits for the year = ₹ 90,000 (A) ₹ 4,20,000 (B) ₹ 3,11,000 (C) ₹ 1,20,000 (D) ₹ 2,20,000 20 / 49 Find the goodwill from the following information:Capital employed – ₹ 11,00,000Rate of normal return – 10%Future Maintainable profit – ₹ 2,00,000 No. of year purchases – 3 years (A) ₹ 6,00,000 (B) ₹ 2,70,000 (C) ₹ 9,00,000 (D) ₹ 3,70,000 21 / 49 Find the goodwill of the company from the following information:Total Capital Employed = ₹ 8,00,000Reasonable Rate of Return = 15%Profits for the year = ₹ 12,00,000Use capitalization method. (A) ₹ 82,00,000 (B) ₹ 12,00,000 (C) ₹ 72,00,000 (D) ₹ 42,00,000 22 / 49 It is agreed that goodwill of the firm is valued at 2 years purchase of weighted average profits for the last 3 years.Value of goodwill will be – (A) ₹ 1,22,000 (B) ₹ 2,22,000 (C) ₹ 1,22,222 (D) ₹ 1,20,000 23 / 49 It is agreed that goodwill of the company is to be valued at 3 years purchase of average profits for the last 5 years. Year ended Profit/(loss) ₹ in ‘000 31st March 2015 16,110 31st March 2016 11,850 31st March 2017 8,145 31st March 2018 (600) 31st March 2019 12,750Value of goodwill will be – (A) ₹ 28,953 thousand (B) ₹ 29,673 thousand (C) ₹ 28,673 thousand (D) ₹ 29,953 thousand 24 / 49 The profits of last 5 years are ₹ 60,000; ₹ 67,500; ₹ 52,500; ₹ 75,000 & ₹ 60,000. Find the value of goodwill, if it is calculated on average profits of last 5 years on the basis of 3 years of purchase. (A) ₹ 63,750 (B) ₹ 1,91,250 (C) ₹ 1,89,000 (D) ₹ 2,13,750 25 / 49 Which of the following is not required while calculating yield value per share? (A) Expected return rate (B) Normal return rate (C) Superprofit (D) Paid-up value per share 26 / 49 In the balance sheet shares appears at___ (A) Face value (B) Adjusted market value (C) Market price (D) Paid-up value 27 / 49 Super profit means – (A) Future maintainable profit minus the normal return (B) Weighted Average Profit (C) Future maintainable profit minus net profit earned by the business (D) Normal return plus PAT 28 / 49 Which of the following is NOT the method of valuation of Goodwill? (A) Average profit Method (B) Super profit Method (C) Capitalization Method (D) Straight-line Method 29 / 49 As per AS-26, expenditure on research or on the research phase of an internal project should be recognized when it is incurred. (A) An Asset (B) An expense (C) Profit (D) Liability 30 / 49 As per AS-26, the intangible asset can be recognized at – (A) Research phase (B) Development Phase (C) Both (A) and (B) (D) Either (A) or (B) 31 / 49 If control over the future economic benefits from an intangible asset is achieved through legal rights that have been granted for a finite period, the useful life of the intangible asset should not exceed the period of the legal rights unless: (A) The legal rights are renewable and (B) Renewal is virtually certain. (C) Both (A) and (B) (D) Neither (A) nor (B) 32 / 49 As per AS-26, there is a rebuttable presumption that the useful life of an intangible asset will not exceed___from the date when the asset is available for use. (A) Ten years (B) Five years (C) Eight years (D) Six years 33 / 49 Which of the following Accounting Standard deals with Intangible Assets? (A) AS-22 (B) AS-24 (C) AS-26 (D) AS-28 34 / 49 The market value of share = (A) DPS × EPS (B) P/E Ratio × DPS (C) P/E Ratio × EPS (D) (P/E Ratio ÷ EPS) × 100 35 / 49 As per the valuation of equity shares based on the price-earnings ratio, the shares are valued on the basis of __ multiplied by the price-earnings ratio. (A) Dividend per share (B) Earnings per share (C) Bonus per share (D) Interest per share 36 / 49 Fair value is the average of the – (A) Intrinsic value and yield value (B) Internal value and external value (C) Capitalized value and earning value (D) Notional value and book value 37 / 49 When controlling shares are to be sold then which of the following will be the appropriate base for valuation of shares: (A) Rate of dividend (B) Rate of earning (C) Rate of gross profit (D) Rate of risk-free return 38 / 49 For which one or more of the following reasons is the recognition as an asset of an internally generated intangible prohibited? ,(a) Because there may not be an active market for that asset.(b) Because its cost is usually relatively insignificant.(c) Because it is difficult to reliably identify the related costs(d) Because it is difficult to establish the probability of flow of economic benefits (A) (a) & (b) (B) (c) & (d) (C) (b) & (c) (D) (b) & {d) 39 / 49 While deciding net asset value, fictitious assets – (A) Should be considered (B) Should not be considered (C) Added to total assets (D) Valued separately 40 / 49 In which of the following cases valuation is essential? (A) Conversion of debt instruments into shares. (B) On directions of Tribunal or Authority or Arbitration Tribunals. (C) When issuing shares to the public either through an Initial Public Offer or by the offer for sale. (D) All of the above 41 / 49 Statement I:Net Asset Method can be fairly used to value shares when the firm is liquidated. Statement II:This method does not give any weight to earning capacity of the company. (A) Statement I is correct but State-ment II is incorrect (B) Statement I is incorrect but Statement II is correct (C) Both Statement I and Statement II are incorrect (D) Both Statement I and Statement II are correct 42 / 49 Which of the following is deducted while calculating net assets available to equity shareholders? (A) Proposed preference dividend (B) Share suspense account (C) Know-how (D) Non-trading investment 43 / 49 Net asset value per share is also known as – (A) Internal value per share (B) Intrinsic value per share (C) Economic value per share (D) Recoverable value per share 44 / 49 Goodwill is – (A) Intangible asset (B) Valuable asset (C) Non-current asset (D) All of the above 45 / 49 Which of the following shall not be taken into consideration while calculating Capital Employed? (A) Discount on issue of debentures (B) Preliminary expenses (C) Fictitious assets (D) All of the above 46 / 49 Which of the following is required to be taken into consideration while valuing equity shares of the company? (A) Size of the block of shares (B) Restricted transferability aspect (C) Dividends (D) All of the above 47 / 49 Market value method is generally the most preferred method in case of – (A) Frequently traded shares of companies listed on stock exchanges having nationwide trading (B) Valuation of a division of a company (C) Where the share are not listed or are thinly traded (D) Where there is an intention to liquidate it and to realize the assets and distribute the net proceeds. 48 / 49 Market-based methods of valuation should not be adopted when – (A) When business is too small (B) When assets are less than liabilities of the business (C) In case of significant and unusual fluctuations in market price (D) It is difficult to estimate the realizable value in case of going concerned. 49 / 49 If the intrinsic value of a share of common stock is less than its market value, which of the following is the most reasonable conclusion? (A) The stock has a low level of risk. (B) The stock offers a high dividend payout ratio. (C) The market is undervaluing the stock. (D) The market is overvaluing the stock. Your score is LinkedIn Facebook Twitter VKontakte Related