# Tybaf || Valuation Of Goodwill

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| By Harjeet Sanghwal
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Harjeet Sanghwal
Community Contributor
Quizzes Created: 1 | Total Attempts: 167
Questions: 20 | Attempts: 167

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• 1.

### Which of the following statement is true

• A.

EVA shows the economic profit of the Co.

• B.

For calculation of EVA WACC is required

• C.

Both a & b

• D.

None of the Above

C. Both a & b
Explanation
Both statement a and b are true. EVA (Economic Value Added) is a financial performance measure that shows the economic profit of a company. It is calculated by subtracting the cost of capital (which is determined by the Weighted Average Cost of Capital or WACC) from the net operating profit after tax. Therefore, in order to calculate EVA, the WACC is required.

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• 2.

### EPS depends on

• A.

Net profit available to equity shareholders

• B.

None of the Above

• C.

Net profit available to preference shareholders

• D.

Both a & b

A. Net profit available to equity shareholders
Explanation
EPS (Earnings Per Share) is a financial metric that indicates the profitability of a company and is calculated by dividing the net profit available to equity shareholders by the total number of outstanding shares. Therefore, the correct answer is "Net profit available to equity shareholders" because EPS is directly dependent on this factor.

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• 3.

### MVA is

• A.

• B.

• C.

Both a & b

• D.

None of the Above

Explanation
MVA stands for Market Value Added, which refers to the difference between the market value of a company and the capital invested in it. It is a measure of the company's ability to generate value for its shareholders. MVA takes into account both the market value of the company's assets and liabilities, and it is calculated by subtracting the total capital invested in the company from its market value. Therefore, the correct answer is Market Value Added.

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• 4.

### Super profit is

• A.

Excess of average profit over normal profit

• B.

Extra profit earned

• C.

Average profit earned by similar companies

• D.

None of the above

A. Excess of average profit over normal profit
Explanation
Super profit refers to the excess of average profit over normal profit. Normal profit is the minimum level of profit required to keep a business running, while average profit is the profit earned over a specific period of time. Therefore, super profit represents the additional profit earned by a company, indicating its performance above the minimum level necessary for sustainability.

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• 5.

### Normal profit is

• A.

Average profit earned

• B.

Profit earned by similar companies in the same industry

• C.

(a) and (b)

• D.

None of the above

A. Average profit earned
Explanation
The correct answer is "Average profit earned." Normal profit refers to the average profit earned by similar companies in the same industry. It is the minimum level of profit necessary to keep a business operating in the long run. This level of profit ensures that all costs, including opportunity costs, are covered, allowing the business to continue its operations.

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• 6.

### Normal profit depends on

• A.

Normal Rate of Return

• B.

Average capital employed

• C.

Both (a) and (b)

• D.

None of the above

C. Both (a) and (b)
Explanation
Normal profit depends on both the normal rate of return and the average capital employed. The normal rate of return is the minimum level of profit that a business expects to earn in order to cover its costs and provide a return on investment. The average capital employed refers to the average amount of capital invested in the business over a specific period of time. Both factors are important in determining the level of normal profit for a business.

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• 7.

### Goodwill as per purchase of average profit method

• A.

Average Profit

• B.

Average profit x Amount of purchases

• C.

Average Profit x No. of years purchases

• D.

All of the above

A. Average Profit
Explanation
The explanation for the given correct answer is that the concept of goodwill as per the purchase of average profit method is based on calculating the average profit of a business and then multiplying it by either the amount of purchases or the number of years of purchases. Therefore, the correct answer is "Average Profit" because it is a common factor in both calculations.

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• 8.

### Goodwill as per purchase of super profit method is

• A.

Super Profit

• B.

Super Profit x amount of Purchases

• C.

Super of Profit x No of year's Purchases

• D.

None of the above

C. Super of Profit x No of year's Purchases
Explanation
The correct answer is "Super of Profit x No of year's Purchases." According to the purchase of super profit method, goodwill is calculated by multiplying the super profit by the number of years' purchases. This method is used to determine the value of goodwill when a business is purchased based on its ability to generate higher profits than normal.

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• 9.

### Normal Rate of Return depends on

• A.

Rate of Interest

• B.

Rate of Risk

• C.

Both a & b

• D.

None of the above

C. Both a & b
Explanation
The normal rate of return depends on both the rate of interest and the rate of risk. The rate of interest represents the cost of borrowing or the return on investment, while the rate of risk reflects the level of uncertainty or potential loss associated with an investment. Both factors are essential in determining the normal rate of return as they directly impact the profitability and attractiveness of an investment opportunity.

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• 10.

### While both calculating capital employed

• A.

Tangible trading assets should be considered

• B.

Intangible assets should be considered

• C.

Fictitious assets should be considered

• D.

None of the above

A. Tangible trading assets should be considered
Explanation
When calculating capital employed, it is important to consider tangible trading assets. Tangible trading assets are physical assets that are used in the normal course of business operations and have a monetary value. These assets can include inventory, machinery, equipment, and property. Including tangible trading assets in the calculation of capital employed provides a more accurate representation of the resources that a company has invested in its operations.

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• 11.

### Any non-trading income included in the profit should be

• A.

Eliminated

• B.

• C.

Ignored

• D.

None of the above

A. Eliminated
Explanation
Any non-trading income should be eliminated from the profit because it is not directly related to the core business activities. Non-trading income includes sources such as interest income, rental income, or gains from the sale of assets that are not part of the regular trading operations. By eliminating non-trading income, the resulting profit will reflect only the earnings generated from the primary business activities, providing a more accurate representation of the company's performance in its core operations.

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• 12.

### Under capitalization profit method, Goodwill is equal to

• A.

Capitalized Value of super profit at NRR

• B.

Capitalized value of maintained profit

• C.

Both a & b

• D.

None of the Above

A. Capitalized Value of super profit at NRR
Explanation
Under the capitalization profit method, the value of goodwill is equal to the capitalized value of super profit at NRR (Normal Rate of Return). This means that the goodwill is calculated based on the excess profit earned by a company over and above the normal rate of return expected in the industry. This method helps in determining the value of goodwill based on the company's ability to generate higher profits compared to its competitors.

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• 13.

### Capital employed at the end of the year is 4, 20,000. Profit earned is 40.000. Average capital employed is

• A.

4,20,000

• B.

4,00,000

• C.

4,40,000

• D.

4,60,000

A. 4,20,000
Explanation
The average capital employed can be calculated by dividing the total capital employed by the number of periods. In this case, since only the capital employed at the end of the year is given, we can assume that the capital employed remains constant throughout the year. Therefore, the average capital employed would be the same as the capital employed at the end of the year, which is 4,20,000.

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• 14.

### Rate of interest is 11 % and the rate of risk is 9 %. The normal rate of return is

• A.

11 %

• B.

19 %

• C.

20 %

• D.

2 %

B. 19 %
Explanation
The normal rate of return is 19%. This can be calculated by adding the rate of interest (11%) to the rate of risk (9%). The normal rate of return represents the expected return on an investment, taking into account both the interest rate and the level of risk associated with the investment. In this case, the total normal rate of return is 19%, which is the correct answer.

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• 15.

### Capital at the beginning of the year is 5,20,000 and the profit earned during the year is 60,000. The average capital employed year is

• A.

5,50,000

• B.

5,20,000

• C.

5,80,000

• D.

4,60,000

A. 5,50,000
Explanation
The average capital employed for the year can be calculated by adding the capital at the beginning of the year and the profit earned during the year, and then dividing the sum by 2. In this case, the capital at the beginning of the year is 5,20,000 and the profit earned during the year is 60,000. Adding these two amounts gives us 5,80,000. Dividing this sum by 2 gives us an average capital employed of 5,50,000.

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• 16.

### The average Profit is 19,167 and the normal profit is 10,000. The Super Profit is

• A.

3,29,167

• B.

19,167

• C.

10,000

• D.

9,167

D. 9,167
Explanation
The super profit can be calculated by subtracting the normal profit from the average profit. In this case, the average profit is 19,167 and the normal profit is 10,000. Therefore, the super profit is 9,167.

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• 17.

### Super Profit is Rs 9,167 and the Normal Rate of Return is 10 % Goodwill as per capitalization of the Super Profit method is equal to

• A.

67,910

• B.

91,670

• C.

90,600

• D.

95,000

B. 91,670
Explanation
The Goodwill as per capitalization of the Super Profit method is equal to Rs 91,670. This is calculated by dividing the Super Profit (Rs 9,167) by the Normal Rate of Return (10%). Therefore, 9,167/0.10 = 91,670.

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• 18.

### Which of the following statement is true

• A.

Fair value is the yield value

• B.

Fair value is the average of intrinsic and yield value

• C.

Both A& B

• D.

None of the above

B. Fair value is the average of intrinsic and yield value
Explanation
The correct answer is "Fair value is the average of intrinsic and yield value." This means that fair value is determined by taking into consideration both the intrinsic value (the inherent worth of an asset) and the yield value (the return on investment). By averaging these two values, a fair and balanced estimation of the asset's value can be determined.

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• 19.

### Shares are to be valued on

• A.

Mergers

• B.

Sale of shares

• C.

• D.

All of the above

D. All of the above
Explanation
Shares can be valued in various situations, including mergers, the sale of shares, and for gift tax purposes. In mergers, the value of shares is important to determine the exchange ratio between the merging companies. In the sale of shares, the value is crucial to determine the fair price at which the shares should be sold. Additionally, when shares are gifted, their value is assessed for tax purposes. Therefore, all of the given options are situations in which shares need to be valued.

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• 20.

### Quoted shares are those shares which are

• A.

Listed on the stock exchange

• B.

Quoted daily

• C.

Quoted by the seller

• D.

B. Quoted daily
Explanation
The correct answer is "Quoted daily" because quoted shares are shares that are regularly traded on the stock exchange and their prices are updated and published on a daily basis. This allows investors and traders to have access to the most recent information about the shares and make informed decisions regarding buying or selling them.

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