Goodwill Accounting

Direct answer: Option A, Net effect on cash is zero. When the new partner brings goodwill in cash, the firm’s cash initially increases by that amount. If the old partners then withdraw the entire same amount, cash decreases by exactly that amount. Step by step: initial receipt is a cash increase; complete withdrawal is an equal cash decrease; increase plus decrease of equal amounts gives zero net change. Option A is correct. Option B is wrong because the increase is not permanent. Option C is wrong because cash is an asset, not a liability; the withdrawal reduces cash but does not turn it into a liability. Option D is wrong because cash goodwill is not automatically left as a goodwill asset when the full amount is withdrawn. Memory cue: equal cash inflow and outflow cancel in the final balance sheet.

Unbrought goodwill = ₹50,000 − ₹35,000 = ₹15,000. In the sacrificing ratio 3:2, A’s share is 3 out of 5 total parts. Therefore, A’s share = ₹15,000 × 3/5 = ₹9,000. ₹15,000 is the total unbrought goodwill, not A’s individual share. Exam tip: First calculate the unbrought amount, then distribute it according to the sacrificing ratio.

The correct answer is A, 13/30. A and B originally share profits in the ratio 8:7, so A’s old share is 8/(8+7)=8/15. C is admitted for 1/5 share. Since A and B sacrifice equally, each gives up half of C’s share: 1/5 ÷ 2 = 1/10. A’s new share is therefore 8/15 − 1/10. Using denominator 30, 8/15=16/30 and 1/10=3/30, so A’s new share = 16/30−3/30=13/30. Option A is correct. Option B, 11/30, results from an incorrect subtraction. Option C, 8/15, is A’s old share before admission, not the new share. Option D, 1/10, is only A’s sacrifice, not A’s final share. Exam cue: first convert the old ratio into a fraction, then subtract the individual sacrifice.

Under the old ratio of 8:7, B’s old share is 7/(8+7) = 7/15. Since C’s 1/5 share is sacrificed equally, B’s sacrifice is 1/5 × 1/2 = 1/10. Therefore, B’s new share is 7/15 − 1/10 = 14/30 − 3/30 = 11/30. Option C is only B’s old share and does not deduct the sacrifice. Exam tip: When the incoming partner’s share is sacrificed equally, each old partner sacrifices half of that share.

Goodwill is (45000 \div 15% = ₹300000). In this method super profit is capitalized at the normal rate.

Goodwill compensation is linked with partners' capital accounts. Revaluation account is for changes in assets and liabilities.

A's sacrifice is (1/5 \times 3/5=3/25) and B's sacrifice is (2/25). New shares are (12/25) (8/25) and (5/25) so (12:8:5).

Goodwill brought by the incoming partner is distributed among the sacrificing partners in their sacrificing ratio. A’s share is \(\frac{3}{3+2}=\frac{3}{5}\). Therefore, A receives \(₹25{,}000 \times \frac{3}{5}=₹15{,}000\). The ₹20,000 option incorrectly applies the other partner’s 4/5 share. Exam tip: For distributing incoming partner’s goodwill, use the given sacrificing ratio, not the new profit-sharing ratio.

Old partners are entitled only to the required goodwill. Excess amount is adjusted in the new partner's account.

Total value based on C is (140000 \div 1/4 = ₹560000). Actual capital is ₹440000 so hidden goodwill is ₹120000.

Old partners give up a part of future profits. Therefore their capitals are credited with goodwill.

Goodwill payable by C for a 1/5 share = ₹2,50,000 × 1/5 = ₹50,000. Since C brings only ₹40,000, the deficiency in goodwill = ₹50,000 − ₹40,000 = ₹10,000. ₹50,000 is the total goodwill premium payable by C, not the deficiency. Exam tip: First calculate the incoming partner’s share of goodwill, then subtract the amount actually brought in.

In the new ratio 9:6:5, the total parts are 20, so C’s share is 5/20 = 1/4. Since ₹75,000 represents the goodwill for C’s share, total goodwill = ₹75,000 ÷ 1/4 = ₹3,00,000. The ₹2,25,000 option results from using an incorrect share fraction. Exam tip: when a partner’s share of goodwill is given, divide it by that partner’s profit-sharing fraction to find total goodwill.

Old goodwill belongs to the old firm so it is written off in old ratio. Admission goodwill compensates sacrifice so it goes in sacrificing ratio.

Goodwill distribution is based on sacrifice. So when sacrificing ratio is clearly given use it.

A's share falls from (4/5) to (2/5) while B's share rises from (1/5) to (2/5). So only A sacrifices.

C's required goodwill is (100000 \times 1/5 = ₹20000). Only A sacrifices so the whole amount goes to A.

Under the capitalisation method based on average profit, capitalised value is calculated as Average Profit × 100 ÷ Normal Rate of Return. Goodwill is then found by subtracting actual capital from this capitalised value. If average profit stays fixed while the normal rate rises, the same profit is capitalised at a higher required return. The resulting capitalised value must therefore fall.

For example, with average profit ₹50,000, capitalised value at 10% is ₹5,00,000, while at 20% it is ₹2,50,000. If actual capital remains unchanged, subtracting it from the smaller capitalised value gives lower goodwill. Thus option A, “goodwill will decrease,” is correct. A higher rate does not increase goodwill in this method; it reduces the value attributed to the business’s earning advantage. The conclusion assumes the capitalisation formula and no other figures change.

A's old share was (11/20) and he sacrificed (1/4=5/20). New shares are (6/20) (9/20) (5/20) so (6:9:5).

When the new partner takes his whole share only from A the sacrifice is only by A. So the full goodwill is credited to A.

Total value based on the new partner is (75000 \div 1/8 = ₹600000). After deducting actual capital hidden goodwill is ₹80000.

Old goodwill is written off in old ratio. The second partner's share is (66000 \times 5/11 = ₹30000).

Unbrought goodwill = ₹54,000 − ₹39,000 = ₹15,000. This amount is credited to the sacrificing partners, A and B, in the ratio of 5:3. Therefore, A's share = ₹15,000 × 5/8 = ₹9,375. Hence, A's Capital Account should be credited by ₹9,375. Exam tip: Calculate unbrought goodwill by subtracting the goodwill brought in cash from the goodwill due.

A's share falls from (5/9) to (3/9) while B's share remains (4/9). Therefore only A sacrifices.

Normal profit is (1200000 \times 11% = ₹132000). Super profit is ₹48000 and goodwill is (48000 \times 4 = ₹192000).