Answer: Goodwill is an intangible asset representing a business's reputation and customer loyalty, leading to future economic benefits. Goodwill is valued using methods such as:
Average Profit Method: Goodwill = Average Profits × Number of Years' Purchase.
Super Profit Method: Goodwill = Super Profits × Number of Years' Purchase.
Capitalization Method: Goodwill = Super Profits / Normal Rate of Return.
2. Explain the Accounting Equation with an example.
Answer: The accounting equation is Assets = Liabilities + Capital. It represents the relationship between a business's assets, liabilities, and owner's equity.
Example: If a business starts with a capital of ₹50,000 and borrows ₹20,000, its total assets will be ₹70,000 (₹50,000 capital + ₹20,000 liability).
3. What is Depreciation? Explain its objectives.
Answer: Depreciation is the reduction in the value of an asset over time due to wear and tear, obsolescence, or passage of time. Objectives include:
To reflect the decrease in asset value accurately.
To allocate the cost of an asset over its useful life.
To match revenue with expenses in the same accounting period.
4. What are Non-Profit Organizations (NPOs) and their primary financial statements?
Answer: NPOs are organizations that aim to serve a social cause rather than make a profit, like clubs and charitable institutions. Their primary financial statements are:
Receipt and Payment Account: A summary of all cash and bank transactions.
Income and Expenditure Account: Similar to a Profit & Loss Account, showing surplus or deficit.
Balance Sheet: Showing financial position at the end of the year.
5. What is the Partnership Deed, and why is it important?
Answer: A partnership deed is a legal document that outlines the terms and conditions agreed upon by partners. It is important because it defines the roles, responsibilities, and profit-sharing ratios, reducing disputes and guiding in case of disagreements.
6. Define and differentiate between Current and Non-Current Assets.
Answer:
Current Assets: Assets expected to be converted into cash or used within one accounting year, such as inventory, accounts receivable, and cash.
Non-Current Assets: Long-term investments that cannot be quickly converted into cash, like buildings, machinery, and patents.
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