Question : The term number of years' purchases means
Option 1: The number of years during which the purchaser of goodwill expect that the profit due to goodwill are likely to arise in future
Option 2: Number of years in which good will is purchased
Option 3: Number of years for which goodwill purchased will not help the firm in earing similar profits
Option 4: None of the above
Correct Answer: The number of years during which the purchaser of goodwill expect that the profit due to goodwill are likely to arise in future
Solution : Answer = The number of years during which the purchaser of goodwill expects that the profit due to goodwill is likely to arise in future
The term "number of year purchase" refers to the duration over which the purchaser of goodwill anticipates that the profits attributable to goodwill will continue to be generated in the future. It reflects the expected period during which goodwill is expected to contribute to the firm's profitability. The number of years of purchase means the number of years for which the firm is likely to earn the same amount of profit after the change of ownership because of the efforts put in the past. Hence, the correct option is 1.
Question : Under average profit methods goodwill is calculated as
Option 1: Super profit x No. of years purchases
Option 2: Average profit X No. of years purchases
Option 3: Capital employed X No. of years purchases
Option 4: Super profit/expected rate of return
Question : Average profits of a firm during the last few years are Rs. 80,000 and the normal rate o return in a similar business is 10%. If the goodwill of the firm is Rs. 1,00,000 at 4 years purchase of super profit, the value of capital employed by the firm is
Option 1: Rs 55,000
Option 2: Rs 5,50,000
Option 3: Rs 10,50,000
Option 4: Rs 1,00,000
Question : Increase in value of Goodwill means___________
Option 1: Goodwill purchased
Option 2: Non purchased goodwill ( self - Generated goodwill )
Option 3: Both 1 and 2
Question : Under the super profit method, goodwill is calculated by
Option 1: Number of years purchase X Average profit
Option 2: Number of years purchase X Super profit
Option 3: super profit/normal rate of return
Option 4: super profit - normal profit
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