Goodwill

Correct answer: A. New profit sharing ratio

Raised goodwill is commonly written off among new partners in the new ratio. Always check the instruction in the question first.

Correct answer: A. Effects of old and new goodwill may mix

Existing goodwill belongs to old partners and should be cleared before admission. This avoids confusion in new adjustment.

Correct answer: C. No entry

Direct answer: Option C, no entry. The new partner has paid goodwill privately to A, not to the firm. Since neither cash nor bank of the firm receives the money, the firm’s books have no transaction to record. Therefore no journal entry is passed. Option C is correct. Option A, Cash debit and A capital credit, would be correct only if the firm itself received cash and then credited A; that has not happened. Option B records an unrelated debit to A and a credit to goodwill and does not represent the private payment. Option D incorrectly treats the private payment as money received from the new partner through the firm and also reverses the normal bank direction. The payment may be acknowledged outside the firm’s books, but it is not recorded in those books. Memory cue: no firm transaction means no firm journal entry.

Correct answer: A. Sacrificing ratio

The direct answer is option A: the sacrificing ratio. When a new partner enters, the old partners give up part of their future profit share for the new partner. This reduction is called sacrifice. Goodwill brought in cash by the new partner is compensation for that sacrifice, so the amount retained in the firm is credited to the old partners in the ratio in which they sacrifice profit. The steps are: find each old partner’s old share; find the new share after admission; calculate sacrifice as old share minus new share; distribute the goodwill contribution to old partners in that sacrificing ratio. Option A is correct. Option B, new ratio, shows how profits will be shared after admission, not how the old partners gave up their shares. Option C, equal ratio always, is wrong because sacrifice is not automatically equal; it depends on the actual old and new ratios. Option D, capital ratio, is wrong because goodwill compensation is linked to profit sacrifice, not to the amounts of capital contributed. For example, if two old partners sacrifice in the ratio 2:1, goodwill cash is credited to them in 2:1, even if their capitals are unequal. The exam cue is: admission means old partners sacrifice; retirement or death often involves gaining partners. Use the ratio connected with the event, not a convenient but unrelated capital ratio.

Correct answer: A. It remains in the firm

The withdrawn amount is debited to capital accounts and the rest remains in the firm. Therefore the remaining part stays in bank.

Correct answer: B. Rupees 60000

Total ratio is seven and the second partner's share is five sevenths. Five sevenths of rupees 84000 is rupees 60000.

Correct answer: A. ₹45,000

The gaining ratio is 5:3, so the second continuing partner bears 3 out of the total 8 parts. Amount borne = ₹1,20,000 × 3/8 = ₹45,000. Therefore, option A is correct. Exam tip: divide the retiring partner’s share of goodwill according to the continuing partners’ gaining ratio.

Correct answer: A. Rupees 125000

The deceased partner's goodwill share equals his old profit share in total goodwill. One fourth of rupees 500000 is rupees 125000.

Correct answer: A. A sacrificed one twelfth

Direct answer: A sacrificed one-twelfth, so option A is correct. Sacrifice means a partner gives up part of the old profit share. A's old share was \(1/3\), and the new share is \(1/4\). Convert them to a common denominator: \(1/3=4/12\) and \(1/4=3/12\). The decrease is \(4/12-3/12=1/12\), so A has sacrificed one-twelfth. Option A is correct because it states this exact decrease. Option B is wrong because A did not gain; the share became smaller. Option C is wrong because one-third and one-fourth are not equal. Option D is wrong because the sacrificed amount is the difference, one-twelfth, not the whole new share one-fourth. Exam cue: when a share falls, calculate old share minus new share; the result is sacrifice.

Correct answer: A. Among the old partners in their sacrificing ratio

A new partner compensates old partners for the share of future profits they sacrifice. Therefore, goodwill brought in cash is distributed among old partners in the sacrificing ratio, not the old ratio. Exam tip: Sacrificing ratio = old ratio − new ratio.

Correct answer: A. Principle of compensation

A sacrificing partner gives up future profit share so he should receive fair compensation. Less credit makes the adjustment unfair.

Correct answer: A. Leaving goodwill account with permanent debit balance

When goodwill is not to be retained there should be no permanent balance in goodwill account. Adjust through capital or current accounts.

Correct answer: A. Business earning of the firm will be overstated

Income from non trading investment is not normal business profit. Including it may overstate goodwill.

Correct answer: A. Super profit may be understated

Super profit equals maintainable profit minus normal profit, and normal profit is calculated on the appropriate capital employed at the normal rate. A non-trading asset does not normally contribute to the firm’s operating profits. If it is wrongly included in capital employed, the capital base becomes overstated; consequently, calculated normal profit also becomes too high. Subtracting this inflated normal profit from maintainable profit produces an understated super profit, which can also lead to an understated goodwill valuation. Therefore option A is correct. The effect is not always an increase, normal profit does not become nil, and goodwill cannot become cash merely because of a classification error.

Correct answer: A. Rupees 650000

Income that will stop in future is not maintainable earning. Therefore deduct rupees 50000 from rupees 700000 to take rupees 650000.

Correct answer: B. Rupees 240000

A future fall in expense increases profit. Add rupees 20000 to get adjusted profit of rupees 240000.

Correct answer: A. When the main customer contract is going to end soon

Ending of a main contract can reduce future income. Goodwill is based on future earning so caution is needed.

Correct answer: A. It can increase goodwill

A famous brand can attract customers and generate extra earning. Therefore it can increase goodwill.

Correct answer: A. Calculate by that method

Clear instruction is followed first in accounting questions. Changing the method may make the answer wrong.

Correct answer: A. It will be debited

The gaining partner pays compensation. If adjustment is through current accounts his current account will be debited.

Correct answer: A. Approximately ₹275455

Weighted average profit is found by multiplying every profit by its corresponding weight, adding all weighted products, and dividing by the total of the weights. The weighted total is ₹1,50,000×1 + ₹2,10,000×2 + ₹2,70,000×3 + ₹3,30,000×5. These products are ₹1,50,000, ₹4,20,000, ₹8,10,000 and ₹16,50,000, giving a total of ₹30,30,000. The sum of weights is 1+2+3+5 = 11. Therefore, weighted average profit = ₹30,30,000 ÷ 11 = ₹2,75,454.55, which rounds to approximately ₹2,75,455. Option A is correct. Option C is only the weighted total, not the average, and the other amounts do not satisfy the weighted-average formula.

Correct answer: A. ₹85000

Super profit is the excess of future maintainable profit over normal profit. First adjust the historical average profit for known future changes. The additional expense reduces profit by ₹60000, whereas the new income increases it by ₹35000. Therefore future maintainable profit = ₹420000−₹60000+₹35000 = ₹395000. Super profit = future maintainable profit−normal profit = ₹395000−₹310000 = ₹85000. Hence option A is correct. Option C is the adjusted maintainable profit, not super profit; option B incorrectly adds the expense, and option D does not use both adjustments correctly. This distinction is essential in goodwill valuation.

Correct answer: A. Rupees 540000

Direct answer: Goodwill is ₹540,000, so option A is correct. Under the super-profit method, first find super profit by subtracting normal profit from average profit. Average profit is ₹540,000 and normal profit is ₹360,000, so super profit is ₹540,000−₹360,000=₹180,000. Goodwill equals super profit multiplied by the number of years' purchase: ₹180,000×3=₹540,000. Option A is correct because it is this final amount. Option B is only the normal profit, not goodwill. Option C is only the super profit before applying three years' purchase. Option D incorrectly uses a larger amount and does not follow the stated multiplication. Remember: Goodwill = super profit × years' purchase.

Correct answer: A. Rupees 4000000

Capitalized value is found by dividing average profit by normal rate. Rupees 720000 divided by eighteen percent gives rupees 4000000.

Correct answer: A. Rupees 850000

Direct answer: Goodwill is ₹850,000, so option A is correct. In the capitalization method, goodwill is found by comparing the capitalized value of the business with the actual capital employed. The formula is goodwill = capitalized value − actual capital employed. Substitute the figures: ₹3,500,000−₹2,650,000=₹850,000. Option A is correct because it gives this difference. Option B is the actual capital employed, not the goodwill. Option C is the complete capitalized value, not the excess value representing goodwill. Option D adds the two amounts, but goodwill is found by subtraction, not addition. The important idea is that capitalized value includes the actual capital plus the value of goodwill; therefore the excess is goodwill.