Goodwill Accounting

Correct answer: C. Sacrificing ratio

On admission, the old partners give up a part of their profit share in favour of the incoming partner. Therefore, the goodwill premium brought in cash by the new partner is credited to the old partners’ capital accounts in their sacrificing ratio. The old profit-sharing ratio need not be the sacrificing ratio. Exam tip: calculate sacrificing ratio as old share minus new share before distributing the premium.

Correct answer: A. (1:1)

C's total share is (2/7) and (1/7) is taken from A. The balance from B is also (1/7) so the sacrificing ratio is (1:1).

Correct answer: B. ₹20000

The new partner's share is (1/6). When goodwill is written off he will be debited by (120000 \times 1/6 = ₹20000).

Correct answer: A. Net debit

If credit in old ratio is less than debit in higher new ratio a net debit arises. This shows the position of a gaining partner.

Correct answer: A. B sacrifices and A gains

A's share falls from (2/5) to (3/10) and B's share falls from (3/5) to (4/10). Both sacrifice but B sacrifices more.

Correct answer: C. ₹1,80,000

C's share in the new ratio is \(\frac{3}{5+4+3}=\frac{3}{12}=\frac{1}{4}\). Therefore, ₹45,000 represents one-fourth of the firm's total goodwill. Total goodwill \(=₹45,000 \div \frac{1}{4}=₹1,80,000\). The option ₹1,50,000 is incorrect because one-fourth of it is only ₹37,500. Exam tip: To find total goodwill, divide the incoming partner's goodwill by that partner's share in the new profit-sharing ratio.

Correct answer: B. ₹120000

Adding back abnormal loss makes the second year's profit ₹140000. Average is ((80000+140000+140000)/3=₹120000).

Correct answer: A. More recent years

Goodwill is based on future earning capacity. Recent years indicate the future better so they get higher weight.

Correct answer: C. ₹40000

Total required goodwill ₹64000 is distributed to old partners. The second partner's share is (64000 \times 5/8 = ₹40000).

Correct answer: A. Current accounts

In fixed capital method capital accounts are generally kept fixed. Therefore adjustments are made through current accounts.

Correct answer: A. Old profit sharing ratio

If sacrifice is stated to be in old ratio then sacrificing ratio equals old ratio. Otherwise actual sacrifice should be calculated.

Correct answer: B. ₹32000

Direct answer: Option B, ₹32,000. C’s share of goodwill is calculated first: ₹240,000 × 1/6 = ₹40,000. Since C does not bring this amount, it must be credited to the old partners in their sacrificing ratio. A and B sacrifice in the ratio 1:4, so B receives four out of five parts: ₹40,000 × 4/5 = ₹32,000. Option B is correct. Option A, ₹8,000, is A’s share because ₹40,000 × 1/5 = ₹8,000, not B’s share. Option C, ₹40,000, is the total premium due from C, before division between A and B. Option D, ₹192,000, is unrelated to the required one-sixth goodwill amount and confuses total goodwill with the compensation. The key chain is total goodwill, incoming share, then sacrificing ratio. Memory cue: unpaid goodwill is credited to sacrificing partners, not divided equally.

Correct answer: A. Both sacrificed equally

A's sacrifice is (5/12-1/3=1/12) and B's sacrifice is (7/12-1/2=1/12). So both sacrificed equally.

Correct answer: A. \(3/8\)

The total profit share is \(1\). Therefore, B’s new share is \(1-3/8-1/4=1-6/8-2/8=3/8\). Under the old ratio, B’s share was also \(3/8\), so B’s share remains unchanged after the admission. The value \(1/4\) represents C’s share, not B’s. Exam tip: subtract the known partners’ new shares from the total share of \(1\) to find the remaining partner’s share.

Correct answer: A. Gain ratio 1/10

Gain ratio = New share − Old share = 9/20 − 7/20 = 2/20 = 1/10. Since the partner’s new share is greater than the old share, the change represents a gain ratio. Sacrifice ratio applies when the new share is less than the old share. Exam tip: use New share − Old share for gain and Old share − New share for sacrifice.

Correct answer: A. Cash will increase by half of goodwill

The full amount first comes in and half is withdrawn. So final cash increase equals half of goodwill.

Correct answer: B. ₹18000

Excess amount is (90000-72000=₹18000). Old partners are entitled only to the required goodwill.

Correct answer: A. (21/40)

Direct answer: A’s new share is option A, \(21/40\). The total share admitted to C is \(1/4\). Since A and B sacrifice equally, each sacrifices half of C’s share: \(1/4 \div 2=1/8\). The old ratio 13:7 has 20 total parts, so A’s old share was \(13/20\). Therefore A’s new share is \(13/20-1/8\). Taking denominator 40, this is \(26/40-5/40=21/40\). Option A is correct because it shows this exact balance after sacrifice. Option B, \(19/40\), results from an incorrect subtraction. Option C, \(13/20\), is A’s old share and ignores the sacrifice. Option D, \(1/8\), is only the amount sacrificed by each partner, not A’s new share. Memory cue: first divide the incoming partner’s share equally, then subtract each sacrifice from the old share.

Correct answer: A. \(\frac{9}{40}\)

The total of the old ratio 13:7 is 20, so B's old share is \(\frac{7}{20}\). C receives a total share of \(\frac{1}{4}\). Since both old partners sacrifice equally, each partner's sacrifice is \(\frac{1}{4}\div2=\frac{1}{8}\). Therefore, B's new share is \(\frac{7}{20}-\frac{1}{8}=\frac{14}{40}-\frac{5}{40}=\frac{9}{40}\). As an exam tip, divide the incoming partner's share equally among the sacrificing partners before subtracting it from the old share.

Correct answer: C. ₹400000

The correct answer is C, ₹400,000. Under the capitalization of super profit method, goodwill is calculated as Super Profit divided by the Normal Rate of Return. Here, Super Profit is ₹56,000 and the normal return is 14%. Convert 14% into a decimal: 14/100=0.14. Goodwill = ₹56,000 ÷ 0.14 = ₹400,000. Equivalently, ₹56,000 × 100/14 = ₹400,000. Option C is correct. Option A, ₹300,000, would produce super profit of only ₹42,000 at 14%, so it does not fit. Option B, ₹350,000, would produce ₹49,000, also incorrect. Option D, ₹450,000, would produce ₹63,000, which is higher than the given super profit. The concept is that goodwill is the capital sum which, at the normal rate, would earn the given super profit. Memory cue: capitalization of super profit means divide by the percentage rate, not multiply by it.

Correct answer: A. Because goodwill compensation relates to capital accounts

Revaluation account is for changes in values of assets and liabilities. Goodwill compensates sacrifice and is adjusted through capital accounts.

Correct answer: A. (31:9:10)

A's sacrifice is (1/5 \times 2/5=2/25) and B's sacrifice is (3/25). New shares are (31/50) (9/50) (10/50) so (31:9:10).

Correct answer: C. ₹36,000

Goodwill brought by the incoming partner is credited to the old partners in their sacrificing ratio. B’s share is 3/(2+3) = 3/5. Therefore, B will be credited with ₹60,000 × 3/5 = ₹36,000. ₹30,000 would result from an equal distribution, which is not applicable here. Exam tip: In a sacrificing ratio, the partner with the larger ratio receives the larger share of goodwill.

Correct answer: A. Because old partners are entitled only to compensation due for sacrifice

Excess amount is not compensation for sacrifice. It should be adjusted in the new partner's account.

Correct answer: B. ₹100000

Total value based on C is (125000 \div 1/5 = ₹625000). Actual capital is ₹525000 so hidden goodwill is ₹100000.