Under the 'Net Profit Method' of goodwill valuation, goodwill is: MCQ with Answer and Explanation

Question
Under the 'Net Profit Method' of goodwill valuation, goodwill is:
A. Capitalised value of average profits less net tangible assets
B. Number of years purchase of super profits
C. Capitalised value of super profits
D. Number of years purchase of average profits
Answer: Option D
Solution (By JKSSB Mock Tests)
The net profit method uses a multiplier on average profits, not super profits. Capitalisation of super profits is different.
This question belongs to: Accountancy and Statistics Accountancy and Book Keeping
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Question #1
A petty cashier is given Rs 2,000 as float. He spends Rs 1,750 during the month. Under the imprest system, how much will he receive at the start of the next month?
A. Rs 2,000
B. Rs 250
C. Rs 3,750
D. Rs 1,750
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Correct Answer: Option D

Explanation:
Reimbursement equals the exact amount spent (Rs 1,750) so the float is restored back to the imprest limit of Rs 2,000.
This question belongs to: Accountancy and Statistics Accountancy and Book Keeping
Question #2
The journal entry for income tax paid by a sole proprietor from the business bank account is:
A. Debit Capital, Credit Income Tax
B. Debit Income Tax, Credit Bank
C. Debit Drawings, Credit Bank
D. Debit P&L Account, Credit Bank
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Correct Answer: Option C

Explanation:
For a sole trader, income tax is a personal expense. Paying it from business funds is treated as Drawings.
This question belongs to: Accountancy and Statistics Accountancy and Book Keeping
Question #3
If a partner is guaranteed a minimum profit of ₹50,000 and his share of profit is ₹40,000, the deficiency of ₹10,000 will be borne by:
A. The auditor
B. The firm
C. The guarantor partner(s)
D. All partners equally
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Correct Answer: Option C

Explanation:
The deficiency in the guaranteed profit is borne by the partner(s) who gave the guarantee, in their profit-sharing ratio for the guarantee.
This question belongs to: Accountancy and Statistics Accountancy and Book Keeping
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