Goodwill

Super profit = Average Profit − Normal Profit. Therefore, super profit = ₹78,000 − ₹54,000 = ₹24,000, so option A is correct. Exam tip: the excess of average profit over normal profit is called super profit.

Normal profit = Capital employed × Normal rate of return. Therefore, \(₹9,00,000 \times 11\% = ₹99,000\). Option B results from using a 10% rate, while option D is obtained by subtracting the profit from the capital. Exam tip: multiply capital employed by the normal rate of return to find normal profit.

Normal profit = Capital employed × Normal rate of return = ₹9,00,000 × 10% = ₹90,000. Super profit = Average profit − Normal profit = ₹1,35,000 − ₹90,000 = ₹45,000. Therefore, option A is correct. Option B is only the normal profit, not the super profit. Exam tip: Remember the formula—Super profit = Average profit − Normal profit.

Direct answer: Option A, ₹108,000. Under the super-profit method, goodwill is calculated by multiplying super profit by the number of years’ purchase. Here, super profit = ₹36,000 and years’ purchase = 3. Therefore goodwill = ₹36,000 × 3 = ₹108,000. Option A is correct. Option B, ₹36,000, is only the super profit and does not multiply it by three. Option C, ₹12,000, comes from dividing ₹36,000 by three, which is the opposite of the required operation. Option D, ₹72,000, has no valid basis in the given formula. Super profit represents the extra profit expected because of the firm’s good reputation; years’ purchase tells how many years of that extra profit are valued. Memory cue: super-profit goodwill = super profit × years’ purchase.

Under the capitalisation of super profit method, Goodwill = Super Profit × 100 ÷ Normal Rate of Return. Therefore, Goodwill = ₹42,000 × 100 ÷ 14 = ₹3,00,000. Option C is merely the given super profit, not its capitalised value. Exam tip: When the normal rate is expressed as a percentage, multiply by 100 before dividing by the rate.

Capitalised value = Average Profit ÷ Normal Rate of Return. Therefore, ₹1,60,000 ÷ 16% = ₹1,60,000 ÷ 0.16 = ₹10,00,000. Option B is only the average profit, not the capitalised value. Exam tip: Convert the percentage rate into decimal form before dividing.

Under the capitalisation method, goodwill = capitalised value − actual capital employed. Therefore, goodwill = ₹12,50,000 − ₹9,50,000 = ₹3,00,000. Hence, option A is correct. Option B represents the actual capital employed, not goodwill. Exam tip: subtract actual capital employed from the capitalised value in this method.

Abnormal profit is not regular earning so it is deducted. Goodwill is based on normal future profit.

The governing principle in maintainable-profit calculation is that an abnormal item should be removed before finding average profit, because goodwill valuation normally uses a representative or sustainable profit. The reported third-year profit is ₹90,000, but it includes an abnormal profit of ₹15,000. Adjusted third-year profit = ₹90,000 − ₹15,000 = ₹75,000. The three maintainable profits are therefore ₹60,000, ₹75,000 and ₹75,000. Their total is ₹2,10,000, and the simple average is ₹2,10,000 ÷ 3 = ₹70,000. Option B ignores the averaging process, option C is not the corrected average, and option D is only the unaveraged total of the original figures.

The abnormal loss of ₹10,000 has already been deducted from the second year's reported profit. Therefore, it must be added back to determine the adjusted profit: ₹95,000 + ₹10,000 = ₹1,05,000. Hence, option A is correct. ₹95,000 is the unadjusted profit, while ₹85,000 is the first year's profit. Exam tip: Add back abnormal losses and deduct abnormal gains while calculating maintainable average profit.

The additional managerial salary is a recurring future revenue expense. Therefore, ₹18,000 must be deducted from the adjusted or maintainable profit used for goodwill valuation. Option B is incorrect because salary is an expense, not income, and goodwill is not directly equal to the amount of this expense. Exam tip: Deduct recurring future expenses while calculating maintainable profit.

Rent is an expense. If ₹12,000 of rent is saved every year in the future, that expense will no longer be incurred and profit will increase by ₹12,000. Therefore, ₹12,000 is added to the adjusted average profit for goodwill valuation. Decreasing the profit is incorrect because the saving reduces an expense rather than the profit. Exam tip: Add regular future savings in expenses while calculating adjusted profit.

When profits are stable the simple average profit method is useful. If profits vary more weighted method may be better.

In a growing business recent years may better reflect future. So higher weights are given to recent years.

When new share is sacrificed in old ratio the sacrificing ratio is the old ratio itself. So (4:3) is correct.

The direct answer is option A: the new partner's goodwill premium is ₹35000. The firm's total goodwill is ₹210000, and the incoming partner obtains a 1/6 share. The premium is the value of the share of goodwill brought by that partner: \\(₹210000 \\times \\frac{1}{6}=₹35000\\). Option A is correct. Option B is wrong because ₹210000 is the value of the whole firm's goodwill, not the incoming partner's share. Option C, ₹126000, is unrelated to one-sixth; it resembles multiplying by a different fraction. Option D, ₹60000, also does not result from the given fraction. The calculation assumes the question asks for the premium based on the existing total goodwill and gives no separate agreement or hidden goodwill adjustment. Memory cue: new partner's premium = total goodwill × new partner's share.

Second partner's share is (48000 \times \frac{3}{8}=₹18000). Cash goodwill is distributed in sacrificing ratio.

Goodwill is compensation for sacrifice by old partners. Therefore credit is made in sacrificing ratio.

C’s entire 1/4 share is sacrificed by A alone. Therefore, A’s sacrifice is 1/4 and B’s sacrifice is zero, giving a sacrificing ratio of 1:0, expressed as ‘A only’. The goodwill benefit will also be credited only to A. Exam tip: normally, the sacrificing ratio is calculated as old ratio minus new ratio, but here the sacrificing partner is explicitly stated.

When old goodwill appearing in the books is written off, the goodwill account is debited and the old partners’ capital or current accounts are debited in their old profit-sharing ratio. The ratio A:B is 5:3, so the total number of parts is 8. B’s share is 3/8 of the book value: ₹80,000 × 3/8 = ₹30,000. A will be debited with ₹50,000, and together the two debits equal ₹80,000, closing the goodwill account. Option B is A’s share, option C ignores the ratio and assigns the entire amount to B, and option D incorrectly uses one-half. Therefore option A is correct.

C’s old profit-sharing ratio is \(\frac{1}{2+2+1}=\frac{1}{5}\). Therefore, C’s share of goodwill is \(₹2,50,000 \times \frac{1}{5}=₹50,000\). Option B incorrectly uses \(\frac{2}{5}\), which is the share of either A or B. In the exam, first identify the retiring partner’s old profit-sharing fraction and multiply it by the firm’s total goodwill.

After retirement the continuing partners' profit share increases. Therefore they compensate the retiring partner for goodwill.

When continuing partners share in their old mutual ratio the gaining ratio is the same ratio. So (3:2) is correct.

Retiring partner's goodwill share is (₹30000). First continuing partner is debited (30000 \times \frac{2}{3}=₹20000).

Sacrificing partners give up future profit. Therefore they are credited for goodwill in sacrificing ratio.