12th Accountancy - Book Back Answers - Unit 4 - English Medium Guides ~ Kalvi Tips

12th - Accountancy - Book Back Answers - Unit 4 - English Medium

Tamil Nadu Board 12th Standard Accountancy - Unit 4: Book Back Answers and Solutions

This post covers the book back answers and solutions for Unit 4 – from the Tamil Nadu State Board 12th Standard Accountancy textbook. These detailed answers have been carefully prepared by our expert teachers at KalviTips.com.

We have explained each answer in a simple, easy-to-understand format, highlighting important points step by step under the relevant subtopics. Students are advised to read and memorize these subtopics thoroughly. Once you understand the main concepts, you’ll be able to connect other related points with real-life examples and confidently present them in your tests and exams.

By going through this material, you’ll gain a strong understanding of Unit 4 along with the corresponding book back questions and answers (PDF format).

Question Types Covered:

1 Mark Questions: Choose the correct answer,
2 Mark Questions: Very Short Answer Questions
3, 4, and 5 Mark Questions: Short Answer Questions, Excercises

All answers are presented in a clear and student-friendly manner, focusing on key points to help you score full marks.

All the best, Class 12th students! Prepare well and aim for top scores. Thank you!

Topic: Unit 4 :Goodwill In Partnership Accounts

I. Choose the correct Answer

1. Which of the following statements is true?

(a) Goodwill is an intangible asset

(b) Goodwill is a current asset

(d) Goodwill

Answer Key:

(a) Goodwill is an intangible asset

2. Super profit is the difference between ………………..

(a) Capital employed and average profit

(b) Assets and liabilities

(d) Current year’s profit and average profit

Answer Key:

3. The average rate of return of similar concerns is considered as ………………..

(a) Average profit

(b) Normal rate of return

(d) None of these

Answer Key:

(b) Normal rate of return

4. Which of the following is true?

(a) Super profit = Total profit / number of years

(b) Super profit = Weighted profit / number of years

(d) Super profit = Average profit x Years of purchase

Answer Key:

5. Identify the incorrect pair ………………..

(a) Goodwill under Average profit method – Average profit x Number of years of purchase

(b) Goodwill under Super profit method – Super profit x Number of years of purchase

(d) Goodwill under Weighted average profit method – Weighted average profit x Number of years of purchase

Answer Key:

6. When the average profit is RS 25,000 and the normal profit is RS 15,000, super profit is ………………..

(a) RS 25,000

(b) RS 5,000

(d) RS 15,000

Answer Key:

7. Book profit of 2017 is RS 35,000; non – recurring income included in the profit is RS 1,000 and abnormal loss charged in the year 2017 was RS 2,000, then the adjusted profit is ………………..

(a) RS 36,000

(b) RS 35,000

(d) RS 34,000

Answer Key:

(a) RS 36,000

8. The total capitalized value of a business is RS 1,00,000; assets are RS 1,50,000 and liabilities are RS 80,000. The value of goodwill as per the capitalization method will be ………………..

(a) RS 40,000

(b) RS 70,000

(d) RS 30,000

Answer Key:

(d) RS 30,000

II.Very short answer questions

1. What is goodwill?

Goodwill is the good name or reputation of the business which brings benefit to the business. It enables the business to earn more profit.

2. What is acquired goodwill?

Goodwill acquired by making payment in cash or kind is called acquired or purchased goodwill. The excess of purchase consideration over the value of net assets acquired is treated as acquired goodwill.

3. What is super profit?

Super profit is the excess of average profit over the normal profit of a business.
Super profit = Average profit – Normal profit

4. What is normal rate of return?

Normal rate of return, it is the rate at which profit is earned by similar business entities in the industry under normal circumstances.

5. State any two circumstances under which goodwill of a partnership firm is valued.

When there is a change in the profit-sharing ratio.
When a new partner is admitted into a firm.

III. Short answer questions

1.State any six factors determining goodwill.

The profitability of the firm
Favourable location of the business enterprises
good quality of goods or services offered
Tenure of the business enterprises
Efficiency of management.
Degree of Competition

2. How is goodwill calculated under the super profit’s method?

super profit is the base for calculation of the value of goodwill. Super profit is the excess of average profit over the normal profit of a business.
Super profit = Average profit – Normal profit
Normal profit = Capital employed × Normal rate of return
Capital employed = Fixed assets + Current assets – Current liabilities
Normal rate of return = It is the rate at which profit is earned by similar business entities in the industry under normal circumstances.

3. How is the value of goodwill calculated under the capitalization method?

Under this method, value of goodwill is calculated by capitalizing the super profit at normal rate of return, that is, goodwill is the capitalized value of super profit.
$G o o d willl = \frac{Super profit}{Normal rate of return} \times 100$

4. Compute average profit from the following information.

2016 – Rs 8,000; 2017 – Rs 10,000; 2018 – Rs 9,000
Answer Key:

Calculation of Average profit:

Year	Amount Rs.
2016	8,000
2017	10,000
2018	9,000
Total profit	27,000

A v e r a g e p r o f i t = \frac{T o t a l P r o f i t}{N u m b e r o f y e a r s} = \frac{27,000}{3} = R s . 9,000

Valuation of goodwill = Rs. 9,000

5.Calculate the value of goodwill at 2 years purchase of average profit when the average profit is Rs 15,000.
Answer Key:
Goodwill: Rs. 30,000

IV. Excercises

Simple average profit method:
Question 1.
The following are the profits of a firm in the last five years:

Year	Profit Rs
2014	10,000
2015	11,000
2016	12,000
2017	13,000
2018	14,000
Total profit	60,000

Answer Key:

A v e r a g e p r o f i t = \frac{T o t a l p r o f i t}{N u m b e r o f y e a r s}

= \frac{23,000}{5} - R s . 12,000

Valuation of goodwill = Average profit x No. of years purchase

= Rs. 12,000 x 2 years
= Rs. 24,000

Question 2.
From the following information, calculate the value of goodwill on the basis of 3 years purchase of average profits of last four years.

Year	Result	Amount`
2015	Profit	5,000
2016	Profit	8,000
2017	Loss	3,000
2018	Profit	6,000

Answer Key:
Calculation of goodwill:

Year	Profit
2015	5,000
2016	8,000
2018	6,000
Total profit	19,000
(-) 2017 loss profit	3,000
Total profit	16,000

A v e r a g e p r o f i t = \frac{T o t a l P r o f i t}{N u m b e r o f y e a r s} = \frac{16,000}{4} = R s . 4,000

Valuation of goodwill = Average profit x No. of years purchase = Rs 4,000 x 3
= Rs 12,000

Question 3.
From the following information relating to a partnership firm, find out the value of its goodwill based on 3 years purchase of average profits of the last 4 years:
1.Profits of the years 2015, 2016, 2017 and 2018 are Rs. 10, 000, Rs. 12, 500, Rs. 12, 000 and Rs. 11, 500, respectively.
2.The business was looked after by a partner and his fair remuneration amounts to Rs. 1, 500 per year. This amount was not considered in the calculation of the above profits.
Answer Key:

Valuation of goodwill
Calculation of average profit Year Profit

Year	Profit Rs
2015	10,000
2016	12,500
2017	12,000
2018	11,500
Total profit	46,000

A v e r a g e p r o f i t = \frac{T o t a l P r o f i t}{N u m b e r o f y e a r s} = \frac{46,000}{4} = R s . 11,500

(-) Remuneration = Rs. 1,500
Net average profit = Rs. 10,000
Valuation of goodwill = Average profit x No. of years purchase
= Rs. 10,000 x 3
= Rs. 30,000

Question 4.
From the following information relating to Sridevi enterprises, calculate the value of goodwill on the basis of 4 years purchase of the average profits of 3 years.
1.Profits for the years ending 31st December 2016, 2017 and 2018 were RS 1,75,000, Rs. 1,50,000 and Rs. 2,00,000, respectively.
2.A non – recurring income of Rs. 45,000 is included in the profits of the year 2016.
3.The closing stock of the year 2017 was overvalued by Rs. 30,000.

Answer Key:
Calculation of adjusted profit

A v e r a g e p r o f i t

A v e r a g e p r o f i t = \frac{4, 80,000}{3} - R s . 1, 60,000

Goodwill = Average profit x No. of year purchase

= Rs. 1,60,000 x 4
= Rs. 64,00,000

Question 5.
The following particulars are available in respect of the business carried on by a partnership firm:
1.Profits earned: 2016: Rs. 25,000; 2017: Rs. 23,000 and 2018: Rs. 26,000.
2.Profit of 2016 includes a non – recurring income of Rs. 2,500.
3.Profit of 2017 is reduced by Rs. 3,500 due to stock destroyed by fire.
4.The stock was not insured. But, it is decided to insure the stock in future. The insurance premium is estimated to be Rs. 250 per annum.
You are required to calculate the value of goodwill of the firm on the basis of 2 years purchase of average profits of the last three years.

Answer Key:
Calculation of adjusted profit

Total profit = 22,250 + 26, 250 + 25, 750 = Rs 74, 250

\frac{T o t a l P r o f i t}{N u m b e r o f y e a r s} = \frac{74,250}{3} = R s . 24,750

Valuation of goodwill = Average profit x No.of year purchase
= RS 24, 750 x 2 years = RS 49, 500

Weighted average profit method:

Question 6.
Find out the value of goodwill at three years purchase of weighted average profit of last four years.

Year	Profit Rs	Weight
2015	10,000	1
2016	12,500	2
2017	16,000	3
2018	18,500	4

Answer Key:
Calculation of weighted average profit

Year	Profit (Rs)	Weight	Amount (Rs)
2015	10,000	1	10,000
2016	12,500	2	24,000
2017	16,000	3	48,000
2018	18,500	4	72,000
Total		10	1,54,000

W e i g h t e d a v e r a g e p r o f i t = \frac{T o t a l of weighted P r o f i t s}{T o t a l of weights} = \frac{1, 54,000}{10} = R s . 15,400

Goodwill = Weighted average profit x No. of years purchase
= RS 15,400 x 3 = RS 46,200

Purchase of super profit method:

Question 7.
From the following details, calculate the value of goodwill at 2 years purchase of super profit:
1.Total assets of a firm are Rs 5,00,000
2.The liabilities of the firm are Rs 2,00,000
3.Normal rate of return in this class of business is 12.5 %.
4.Average profit of the firm is Rs 60,000.
Answer Key:
Capital employed = fixed assets + current assets – current liabilities
= 5, 00, 000 – 2, 00, 000 = 3, 00, 000
Normal profit = Capital employed x Normal rate of return
= 3,00,000 x

\frac{12.5}{100}

= 3, 75, 000
Super profit = Average profit – Normal profit
= 60, 000 – 37, 500 = 22, 500
Goodwill = Super profit x Number of years of purchase
= Rs. 22,500 x 2
= Rs. 45,000

Question 8.
A partnership firm earned net profits during the last three years as follows:
2016: Rs 20,000; 2017: Rs 17,000 and 2018: Rs 23,000
The capital investment of the firm throughout the above mentioned period has been Rs 80,000. Having regard to the risk involved, 15% is considered to be a fair return on capital employed in the business. Calculate the value of goodwill on the basis of 2 years purchase of super profit.
Answer Key:

Calculation of average profit Year Profit

Year	Profit
2016	20,000
2017	17,000
2018	23,000
Total profit	60,000

A v e r a g e p r o f i t = \frac{T o t a l p r o f i t}{N u m b e r o f y e a r s} = \frac{60,000}{3} = R s . 20,000

Normal profit = Capital employed x Normal rate of return
= 80,000 x 15100 = 12,000
Super profit = 8,000
Valuation of goodwill = Super profit x No. of years purchase
= Rs. 8,000 x 2
= Rs. 16,000

Annuity method:

Question 9.

From the following information, calculate the value of goodwill under annuity method:

1.Average profit – Rs. 14,000

2.Normal profit – Rs. 4,000

3.Normal rate of return – 15%

4.Years of purchase of goodwill – 5

Present value of RS 1 for 5 years at 15% per annum as per the annuity table is 3.352

Answer Key:

Super profit = Average profit – Normal profit

= Rs.14, 000 – Rs. 4, 000 = Rs. 10, 000

Goodwill = Super profit x Present value of annuity factor

= Rs.10,000 x 3.352 = Rs. 33, 520

Capitalisation of super profit method:

Question 10.
Find out the value of goodwill by capitalising super profits:
1.Normal Rate of Return 10%
2.Profits for the last four years are Rs. 30,000, Rs. 40,000, Rs. 50,000 and Rs. 45,000.
3.Anon – recurring income of Rs. 3,000 is included in the above mentioned profit of Rs. 30,000.
4.Average capital employed is Rs. 3,00,000.
Answer Key:

Year
Particulars	I	II	III	IV
Profits	30,000	40,000	50,000	45,000
(-)Non recurring income	3,000	-	-	-
	27,000	40,000	50,000	45,000

Total profit = 27,000+40,000+50,000+45,000-1,62,000

A v e r a g e p r o f i t = \frac{T o t a l p r o f i t}{N u m b e r o f y e a r s} = \frac{1, 62,000}{4} = R s . 40,500

Normal profit = Capital employed x Normal rate of return
= 3,00,00 x

\frac{10}{100}

= 30,000
Super profit = 10,500
Capitalisation super profit method =

\frac{S u p e r p r o f i t}{n o r m a l r a t e o f r e t u r n} \times 100

= 10,500/10 = Rs 1, 05, 000

Capitalisation method:

Question 11.
From the following information, find out the value of goodwill by capitalisation method :
1.Average profit Rs. 20, 000
2.Normal rate of return 10%
3.Tangible assets of the firm RS 2, 20, 000
4.Liabilities of the firm RS 70, 000
Answer Key:
Capital Assets – Liabilities
= 2, 20, 000 – 70, 000 = Rs. 1, 50, 000
Capitalised value of business =

\frac{A v e r a g e p r o f i t}{N o r m a l r a t e o f r e t u r n} \times 100

\frac{=20,000}{10} \times 100

= Rs. 2, 00, 000
Value of goodwill = Total capitalised average profit – Capital employed
= 2, 00, 000 – 1, 50, 000
= Rs. 50,000