Goodwill

Correct answer: A. B

A's share decreases from (5/8) to (3/5) and B's share increases from (3/8) to (2/5). So B gains.

Correct answer: A. \(\frac{1}{12}\)

B’s old share is \(\frac{5}{7+5}=\frac{5}{12}\), while B’s new share is \(\frac{1}{2+1}=\frac{1}{3}=\frac{4}{12}\). Sacrifice = old share − new share = \(\frac{5}{12}-\frac{4}{12}=\frac{1}{12}\), so option A is correct. \(\frac{5}{12}\) is B’s old share, not the sacrifice. Exam tip: Calculate sacrifice by subtracting the new share from the old share.

Correct answer: A. Credit B (₹20000)

B's share decreases from (3/5) to (2/5), so he sacrifices. Sacrifice is (1/5) and credit is (100000 \times \frac{1}{5}=₹20000).

Correct answer: A. To adjust goodwill without keeping it in books

This brings goodwill effect into capital accounts but closes goodwill account. In exams final balance remains nil.

Correct answer: A. Debit A (₹10000)

A is credited (₹30000) in old ratio and debited (₹40000) in new ratio. Net effect is (₹10000) debit.

Correct answer: A. Capitalization of super profit method

Capitalization of super profit method capitalizes super profit at the normal rate. This is its key identity.

Correct answer: A. There is no super profit so goodwill usually will not arise

Super profit is the excess of average profit over normal profit. It is calculated as average profit minus normal profit. Here, the average profit is ₹50,000 and the normal profit is ₹65,000, so super profit is ₹50,000 − ₹65,000 = −₹15,000. The result is negative, which means the business earns less than the normal expected profit. Therefore, goodwill would usually not arise on the basis of super profit, and option A is correct.

The amount ₹15,000 is the shortfall, not positive super profit. Goodwill is normally recognised when a business has an advantage that enables it to earn excess profits. Since these figures show a deficiency rather than excess earning, options claiming goodwill of ₹15,000 or ₹1,15,000 are not supported by the data.

Correct answer: A. Goodwill

Stable customers and good name improve future sales and profit. Therefore they affect goodwill.

Correct answer: A. लगातार ग्राहकों की शिकायतें

Goodwill arises from a firm's reputation, customer trust and favourable relationships. Continuous customer complaints indicate dissatisfaction with the firm's products or services, which can damage its reputation and reduce goodwill. In contrast, a good location, reliable service and a famous brand name generally strengthen goodwill. Exam tip: Factors that weaken customer confidence usually reduce goodwill.

Correct answer: A. Net capital invested in business

Capital employed means net capital invested in the business. Normal profit is calculated by applying rate on it.

Correct answer: A. ₹5,20,000

Capital employed = Total assets − Outside liabilities. Therefore, ₹7,00,000 − ₹1,80,000 = ₹5,20,000, so option A is correct. Option B results from adding the two figures and is incorrect. Exam tip: capital employed is generally equal to net assets.

Correct answer: A. Goodwill

Payment above net assets is for name and earning capacity. This extra value is called goodwill.

Correct answer: A. No net effect

Cash first comes into bank and then the same amount is withdrawn. So net effect on bank is zero.

Correct answer: A. Because his future profit share is gained by remaining partners

The deceased partner had a share in old goodwill of the firm. Remaining partners gain from his share.

Correct answer: A. (₹40000)

Deceased partner's goodwill share is (360000 \times \frac{1}{9}=₹40000). It is credited to his executor's account.

Correct answer: A. ₹60,000

The formula for weighted average profit is \(\text{Total weighted profit} \div \text{Total weights}\). Therefore, \(₹5,40,000 \div 9 = ₹60,000\), so option A is correct. Option C would result from dividing by 6 instead of the given total weight of 9. In the exam, write the formula first and then divide the total weighted profit by the total weight.

Correct answer: A. Normal and future maintainable profit

Goodwill is based on sustainable future earnings. Therefore abnormal items should be removed and normal profit should be used.

Correct answer: A. (₹120000)

Hidden goodwill is found from the difference between total capital and actual adjusted capital. (600000-480000=₹120000) is the correct answer.

Correct answer: B. Because its reputation and customer relations can give extra profit

Goodwill is the value of reputation and extra earning capacity. In exams distinguish it from cash or liability.

Correct answer: B. Purchased goodwill involves actual payment

Purchased goodwill has value proved by payment. Self generated goodwill is generally not shown in books.

Correct answer: B. ₹80,000

Total profit for the three years = ₹65,000 + ₹75,000 + ₹1,00,000 = ₹2,40,000. Average profit = Total profit ÷ Number of years = ₹2,40,000 ÷ 3 = ₹80,000, so option B is correct. Option D is the total profit, not the average profit. Exam tip: Always divide the aggregate profit by the number of years to find average profit.

Correct answer: C. ₹2,76,000

Under the average profit method, goodwill = average profit × years’ purchase. Therefore, goodwill = ₹92,000 × 3 = ₹2,76,000. Option A is only the average profit, whereas option D results from dividing by three. Exam tip: When years’ purchase is given, multiply the average profit by that number.

Correct answer: A. ₹82857

Weighted average profit gives greater importance to the profits assigned higher weights. Multiply each profit by its weight: ₹60,000×1 = ₹60,000, ₹80,000×2 = ₹1,60,000, and ₹90,000×4 = ₹3,60,000. The weighted total is ₹5,80,000 and the total weight is 1+2+4 = 7. Therefore, weighted average profit = ₹5,80,000 ÷ 7 = approximately ₹82,857. Option A is correct. Option B uses an incorrect weighting calculation, option C simply selects the highest profit, and option D is only the weighted total, not the average because it has not been divided by total weights.

Correct answer: B. ₹35,000

Super profit = Average Profit − Normal Profit. Therefore, ₹1,40,000 − ₹1,05,000 = ₹35,000, so option B is correct. ₹2,45,000 is the sum of the two profits, not their difference. Exam tip: Always subtract normal profit from average profit to calculate super profit.

Correct answer: A. ₹90000

Normal profit is the return that the business would ordinarily earn on its capital employed at the normal rate of return. The governing formula is: Normal Profit = Capital Employed × Normal Rate of Return. Convert 12% to 12/100 and calculate ₹7,50,000 × 12/100 = ₹90,000. Thus option A is correct. Option B incorrectly treats the capital as if it were the profit, option C uses the rate as a rupee amount and ignores the capital base, and option D subtracts the rate-related amount from capital. Normal profit is later compared with average profit to determine super profit for goodwill valuation.