Goodwill

Correct answer: A. (₹30000)

New partner's share of goodwill is (150000 \times \frac{1}{5}=₹30000). In admission questions apply new share on total goodwill.

Correct answer: A. To sacrificing old partners

Goodwill premium brought in cash is credited to old partners in sacrificing ratio. Bank is debited and old partners are credited.

Correct answer: A. (₹40000)

Goodwill premium is distributed in (2:1). First old partner gets (60000 \times \frac{2}{3}=₹40000).

Correct answer: A. New partner's capital or current account

When cash is not brought the amount due from new partner is debited to his capital or current account. Old partners are credited in sacrificing ratio.

Correct answer: A. Because goodwill needs fresh treatment in new partnership

Old goodwill belongs to old partners and is written off in old ratio before admission. This avoids double effect in new books.

Correct answer: A. ₹90,000

When existing goodwill is written off, the Goodwill Account is credited and the partners’ capital or current accounts are debited in their old profit-sharing ratio, because the old goodwill belongs to the partners in that ratio. A and B share in the ratio 3:1, so total parts are 4 and A’s fraction is 3/4. Calculation: A’s debit = ₹1,20,000 × 3/4 = ₹90,000. Therefore, option A is correct. B will be debited with the remaining one-fourth, or ₹30,000. Option B is B’s share, option C debits the whole amount to A and ignores B, and option D incorrectly uses a half share. The debit removes A’s proportionate share of the old goodwill from the books.

Correct answer: A. To retiring partner for his share

Retiring partner has a share in old goodwill of the firm. So remaining partners compensate him for that share.

Correct answer: A. In gaining ratio

The governing concept is goodwill adjustment at the time of retirement. When one partner retires, the remaining partners generally acquire, or gain, a portion of the retiring partner’s former profit share. This benefit is measured by the gaining ratio, calculated as the new share minus the old share for each continuing partner. Because these partners receive the future benefit of the firm’s goodwill, their capital accounts are debited in the gaining ratio, while the retiring partner’s account is credited for the amount due. Therefore, option A is correct. The old ratio is used for some routine allocations, equal sharing is not automatic, and cash ratio is not a recognised basis for this adjustment.

Correct answer: A. (₹30000)

Retiring partner's share is (180000 \times \frac{1}{6}=₹30000). Apply his old share on total goodwill.

Correct answer: C. Sacrificing ratio

The incoming partner pays premium for the share of future profits received. Therefore, goodwill premium is credited to old partners in their sacrificing ratio, not their old or new ratio. Exam tip: credit only the partners who sacrifice profit share.

Correct answer: A. Because some partners gain and some sacrifice

Change in ratio changes rights in future profits. Sacrificing partners are compensated by gaining partners.

Correct answer: A. In gaining ratio

The governing principle is compensation for a change in the profit-sharing arrangement. When the partners revise their ratio, some partners sacrifice part of their future profit share and others gain an additional share. Goodwill belongs to the existing partners, so the gaining partners must compensate the sacrificing partners for the benefit obtained. The amount is therefore debited to gaining partners in the gaining ratio, calculated as new share minus old share. The sacrificing partners are credited in the sacrificing ratio, calculated as old share minus new share. Hence option A is correct. The old ratio is not the adjustment basis, the sacrificing ratio applies to the partners giving up profit, and capital ratio is unrelated.

Correct answer: A. B

A's share decreases from (3/5) to (1/2) and B's share increases from (2/5) to (1/2). So B gains.

Correct answer: A. 1/15

A’s old share is \(2/3\) and A’s new share is \(3/5\). Therefore, A’s sacrifice = old share − new share = \(2/3 - 3/5 = 1/15\). Hence, 1/15 is correct. The option 1/5 may result from subtracting the ratio terms incorrectly; always convert the shares to a common denominator. Exam tip: Sacrifice = old share − new share.

Correct answer: A. Nil

Goodwill account is opened by crediting partners and then written off by debiting partners. Finally goodwill account is closed.

Correct answer: A. In old profit sharing ratio

Direct answer: Option A, in the old profit-sharing ratio. When goodwill is raised in the books, the firm recognises the value of its existing reputation. That reputation was created by the old partners while they were sharing profits in the old ratio. Therefore the credit for goodwill should compensate the old partners in that old ratio. Step 1: identify the old profit-sharing ratio. Step 2: record the goodwill asset when the account is raised. Step 3: credit each partner’s capital or current account in the old ratio. Option A is correct. Option B, the new profit-sharing ratio, is wrong because the new ratio relates to future sharing after the change, not the compensation for past reputation. Option C, always equally, is wrong because partners may have unequal old ratios. Option D, drawings ratio, is wrong because drawings measure withdrawals and have no role in allocating goodwill compensation. For example, if the old ratio is 3:2 and goodwill is ₹10,000, credits are ₹6,000 and ₹4,000. Memory cue: old reputation earns old-ratio credit.

Correct answer: A. In new profit sharing ratio

If goodwill is not to appear in new firm it is written off in new ratio. This gives final effect according to sacrifice and gain.

Correct answer: A. Credit A (₹20000)

Direct answer: Option A, Credit A ₹20,000. When goodwill is raised, A is credited in the old ratio because the old partners are treated as contributing the goodwill. A’s old share is 3/5, so ₹100,000 × 3/5 = ₹60,000 credit. When goodwill is written off, A is debited in the new ratio. A’s new share is 2/5, so ₹100,000 × 2/5 = ₹40,000 debit. Net effect = ₹60,000 credit − ₹40,000 debit = ₹20,000 credit. Option A is correct. Option B reverses the final direction; the credit is larger than the debit. Option C is wrong because the two amounts are not equal. Option D wrongly treats the whole goodwill as belonging to A, instead of applying the ratios. Memory cue: raising uses the old ratio; writing off uses the new ratio.

Correct answer: A. Capitalization of average profit method

Capitalization of average profit method capitalizes average profit at normal rate. Therefore both elements are needed.

Correct answer: A. (₹40000)

New partner's share of goodwill is (160000 \times \frac{1}{4}=₹40000). If cash is not brought this amount is debited to the new partner's account.

Correct answer: A. Ability to earn extra profit in future

Goodwill is the value of future extra earning capacity. In exams treat it as an intangible asset linked with reputation.

Correct answer: A. When the firm acquires a business or part of it for consideration

When a firm pays consideration for acquiring a business and the amount paid exceeds the value of its net assets, the excess is called purchased goodwill. In contrast, goodwill estimated from profits or reputation without a specific payment is self-generated goodwill. Exam tip: Look for an actual purchase consideration when identifying purchased goodwill.

Correct answer: A. ₹84,000

The total profit for the three years is ₹72,000 + ₹84,000 + ₹96,000 = ₹2,52,000. Average profit = Total profit ÷ Number of years = ₹2,52,000 ÷ 3 = ₹84,000, so option A is correct. Option D represents the total profit, not the average profit. In the exam, remember to divide the total profit by the number of years.

Correct answer: A. ₹2,05,000

Under the average profit method, Goodwill = Average Profit × Years’ Purchase. Therefore, Goodwill = ₹82,000 × 2.5 = ₹2,05,000. Option B results from multiplying by 2 instead of 2.5 and is therefore incorrect. Exam tip: always multiply the average profit by the stated number of years’ purchase.

Correct answer: A. Approximately ₹76,667

The governing concept is weighted average profit. Each profit must first be multiplied by its assigned weight, and the resulting weighted total must then be divided by the sum of all weights. The weighted amounts are ₹50,000 × 1 = ₹50,000, ₹70,000 × 2 = ₹1,40,000, and ₹90,000 × 3 = ₹2,70,000. Their total is ₹4,60,000, while the total weight is 1 + 2 + 3 = 6. Thus weighted average profit = ₹4,60,000 ÷ 6 = ₹76,666.67, which is approximately ₹76,667. Hence option A is correct. ₹70,000 is merely the middle profit, ₹90,000 is the largest individual profit, and ₹4,60,000 is the weighted sum before division.