Goodwill Accounting

The governing concept is the sacrificing ratio, which measures the share of profit surrendered by each old partner when a new partner is admitted. Use a common denominator. A’s old share is 2/5 = 24/60, while B’s old share is 3/5 = 36/60. The new ratio 4:5:3 totals 12, so A’s new share is 4/12 = 20/60 and B’s new share is 5/12 = 25/60. Therefore, A sacrifices 24/60 − 20/60 = 4/60, and B sacrifices 36/60 − 25/60 = 11/60. Their sacrificing ratio is consequently 4:11. Thus option A is correct. Option B merely repeats the old ratio, option C assumes equal sacrifice without calculation, and option D reverses the order of A’s and B’s sacrifices.

The governing concept is super profit, which is calculated from future maintainable profit rather than from an unadjusted historical average. The additional future expense will reduce maintainable profit by ₹40,000, while the additional future income will increase it by ₹25,000. Thus, future maintainable profit = ₹3,20,000 − ₹40,000 + ₹25,000 = ₹3,05,000. Super profit = future maintainable profit − normal profit = ₹3,05,000 − ₹2,50,000 = ₹55,000. Therefore, option A is correct. Option B results from ignoring the additional income, option C fails to make the stated adjustments, and option D is the adjusted profit itself rather than the excess over normal profit. The distinction between maintainable profit and super profit is essential.

When goodwill already appearing in the books is written off before a partner’s admission, the existing partners’ capital or current accounts are debited in their old profit-sharing ratio. The old ratio is A:B:C = 5:3:1, whose total is 9. B’s fraction is therefore 3/9. B’s debit is ₹270000×3/9 = ₹90000. Option B is correct because it applies the old ratio to the book goodwill. ₹150000 represents an incorrect fraction, ₹30000 reflects only one-ninth, and ₹270000 is the entire goodwill balance rather than B’s share. The write-off removes the asset from the books; it does not debit every partner with the full amount.

New partner's premium is (₹100000 \times 1/5=₹20000). In sacrificing ratio (4:1), the first partner gets (₹16000).

New partner's premium is (₹96000 \times 1/4=₹24000). A's share in old ratio (5:3) is (5/8), so he gets (₹15000).

Existing goodwill is written off in old ratio. The second partner's share is (1/3), so (₹15000) is debited.

The direct answer is option A, ₹12,000. The phrase “goodwill balance adjusted” means the part of the new partner’s required goodwill that has not been brought in cash. First find the goodwill premium required from the new partner: Total goodwill × his share = ₹1,50,000 × 1/5 = ₹30,000. He actually brings only ₹18,000 in cash. Therefore, the amount still to be adjusted is ₹30,000 − ₹18,000 = ₹12,000. Option A is correct. Option B, ₹30,000, is the total premium required, not the balance after cash brought. Option C, ₹18,000, is only the cash brought, not the unpaid part. Option D, ₹48,000, has no connection with the required calculation and is larger than the total premium, so it cannot be the balance. The calculation assumes that the stated total goodwill is the firm’s total value and that the new partner’s share is 1/5. Memory cue: required premium minus cash brought equals goodwill not brought or balance adjusted.

The abnormal profit must be deducted from the average profit to find the normal average profit: ₹72,000 − ₹12,000 = ₹60,000. Therefore, goodwill = normal average profit × years’ purchase = ₹60,000 × 3 = ₹1,80,000. Option B incorrectly multiplies the unadjusted average profit by 3. Exam tip: Always adjust the average profit for abnormal items before applying the years’ purchase method.

Under the weighted-average-profit method, each year’s profit is multiplied by its assigned weight, the weighted total is divided by the total weights, and the resulting average is multiplied by the years’ purchase. Weighted total = (₹30,000 × 1) + (₹50,000 × 2) + (₹70,000 × 3) = ₹30,000 + ₹1,00,000 + ₹2,10,000 = ₹3,40,000. Total weights = 1 + 2 + 3 = 6. Weighted average profit = ₹3,40,000 ÷ 6 = ₹56,666.67. Goodwill = ₹56,666.67 × 2 = ₹1,13,333.33. Hence option A is correct. The other choices arise from using an unweighted or incorrect average, omitting the years-purchase multiplier, or applying an unsupported figure.

Normal profit = Capital employed × Normal rate of return = ₹5,00,000 × 12% = ₹60,000. Super profit = Average profit − Normal profit = ₹90,000 − ₹60,000 = ₹30,000. ₹60,000 is the normal profit, not the super profit. Exam tip: Calculate normal profit first and subtract it from the average profit.

Total goodwill is (₹25000 \times 4=₹100000). New partner's share is (₹100000 \times 1/5=₹20000).

Capitalised value = Average Profit × 100 ÷ Normal Rate of Return = ₹80,000 × 100 ÷ 10 = ₹8,00,000. Goodwill = Capitalised Value − Actual Capital = ₹8,00,000 − ₹6,50,000 = ₹1,50,000. ₹8,00,000 is the capitalised value of the business, not the goodwill; ₹6,50,000 is the actual capital. Exam tip: Under this method, first calculate the capitalised value of average profit and then subtract the actual capital employed.

Under the capitalization of super profit method, goodwill = Super Profit × 100 ÷ Normal Rate of Return. Therefore, goodwill = ₹18,000 × 100 ÷ 9 = ₹2,00,000. ₹18,000 is only the super profit, not the value of goodwill. Exam tip: divide the super profit by the rate expressed as a percentage to obtain the capitalized value.

A's sacrifice is (1/14) and B's sacrifice is (1/14). New partner's premium is (₹70000 \times 2/14=₹10000), so A gets (₹5000).

Old shares were (5/10,3/10,2/10) and new shares are (4/10,3/10,2/10). Only the first partner sacrificed (1/10).

Estimated total capital is (₹80000 \div 1/4=₹320000). Actual total capital is (₹210000+₹80000=₹290000), so goodwill is (₹30000).

Estimated total capital is (₹300000). Actual total capital is (₹310000), so hidden goodwill does not arise.

The bank receives ₹36,000 as the premium for goodwill. The old partners withdraw 50% of it, that is, ₹18,000. Therefore, the net increase in the bank balance is ₹36,000 − ₹18,000 = ₹18,000. The sacrificing ratio of 2:1 is relevant for distributing the premium among the old partners, but it does not change the total net effect on the bank. Exam tip: For the net bank effect, subtract the cash withdrawn from the cash received.

The goodwill premium of ₹24,000 is credited to the old partners according to their sacrificing ratio of 5:3. The ratio contains 5 + 3 = 8 total parts. The first partner’s share is therefore ₹24,000 × 5/8 = ₹15,000, while the second partner receives ₹9,000. When the first partner withdraws the entire credited amount, the partner’s Capital or Current Account is debited and the Bank Account is credited. Consequently, Bank is credited by ₹15,000. Option B is the second partner’s share, option C is the total premium before distribution, and option D does not follow the stated ratio. Thus, option A is unambiguously correct.

The premium implied by the firm’s goodwill valuation is ₹1,20,000 × 1/6 = ₹20,000, but the new partner brings only ₹12,000 in cash. This amount is credited to the old partners in their sacrificing ratio. The second partner receives 2/5 of it: ₹12,000 × 2/5 = ₹4,800.

When goodwill is not brought in cash, the new partner’s account is debited with the full value of goodwill, and the old partners’ accounts are credited in their sacrificing ratio. The third partner’s share is \(3/(1+2+3)=3/6\). Therefore, the amount credited to the third partner is \(₹30,000 \times 3/6 = ₹15,000\). ₹10,000 represents the second partner’s \(2/6\) share. Exam tip: When goodwill is not brought in cash, credit the old partners in the sacrificing ratio.

New partner's goodwill is (₹80000 \times 1/4=₹20000). If cash is not brought, this amount is debited to his account.

Old shares are (7/12,5/12) and new shares are (4/9,3/9). Sacrifices are (5/36) and (1/12), giving (5:3).

First partner's sacrifice is (3/5-2/5=1/5) and second partner's sacrifice is zero. So the entire premium goes to the first partner.

A’s old share was 2/3 and his new share is 1/2, so A’s sacrifice is 2/3 − 1/2 = 1/6. Since C receives 1/4 of the firm’s profits, the total sacrifice of the old partners is 1/4. Therefore, B’s sacrifice = 1/4 − 1/6 = 1/12. Option B represents only A’s sacrifice. Exam tip: The new partner’s share equals the total sacrifice of the old partners.