Goodwill Accounting

The goodwill premium is distributed among the sacrificing partners in their sacrificing ratio. Total parts are 1+2+5=8, and the second partner's share is 2 parts. His amount is therefore ₹48,000×2/8 = ₹12,000. Option B corresponds to only one part, option C corresponds to five parts, and option D is the entire premium rather than the second partner's entitlement.

The direct answer is A: ₹20,000 goodwill is not brought in cash and must be adjusted. The new partner’s total goodwill obligation is the firm’s goodwill multiplied by the share obtained: \(₹2,00,000\times3/10=₹60,000\). The partner actually brings ₹40,000. The unpaid balance is therefore \(₹60,000-₹40,000=₹20,000\), which is adjusted through the sacrificing partners’ capital or current accounts according to the sacrificing ratio. Option A is correct. Option B is the total required premium, not the unpaid amount. Option C is only the cash brought. Option D is half the total goodwill and has no valid calculation. The key is to subtract actual cash from required goodwill, not from total goodwill.

Existing goodwill is written off in old ratio. The third partner's part is (1/6), so (₹10000) is debited.

Existing old goodwill is first removed in old ratio. New goodwill is raised only if the question instructs so.

Even when cash is not brought, old partners are credited in sacrificing ratio. Dividing (₹20000) equally gives (₹10000) each.

After C’s admission, A’s new share is \(3/5\) and B’s new share is \(1/5\). A’s old share was \(4/5\), so A sacrifices \(4/5-3/5=1/5\). B’s old and new shares are both \(1/5\), so B makes no sacrifice. Therefore, the entire goodwill premium of ₹25,000 goes only to A. The exam tip is to distribute goodwill premium in the sacrificing ratio, not in the old profit-sharing ratio.

The new partner’s 1/5 share is sacrificed by the first and third partners in the ratio 1:4. Thus, the sacrificing ratio is 1:0:4. The third partner’s share of the premium is 4/5, so he receives ₹50,000 × 4/5 = ₹40,000. Remember that goodwill premium is distributed in the sacrificing ratio, not in the old profit-sharing ratio.

Total sacrifice equals new partner's share (1/4). Since first sacrifices (1/8), second also sacrifices (1/8).

Add back abnormal loss to get normal average profit (₹115000). Goodwill is (₹115000 \times 2=₹230000).

Total profit = ₹40,000 + ₹50,000 + ₹60,000 + ₹70,000 = ₹2,20,000. Average profit = ₹2,20,000 ÷ 4 = ₹55,000. Under the average profit method, goodwill = Average Profit × Years’ Purchase = ₹55,000 × 3 = ₹1,65,000. Therefore, option A is correct. Option B represents the total profit, while option C represents only the average profit, not goodwill. Exam tip: First divide total profit by the number of years to find average profit, and then multiply it by the years’ purchase.

The governing concept is goodwill valuation under the years’ purchase method during admission of a partner. First calculate the firm’s total goodwill: Total Goodwill = Weighted Average Profit × Years’ Purchase = ₹64,000 × 2.5 = ₹1,60,000. The incoming partner does not contribute the entire goodwill; he contributes only the value of the share acquired. Therefore, his goodwill premium is ₹1,60,000 × 1/8 = ₹20,000. Option A is correct. Option B is the total goodwill of the firm, not the incoming partner’s premium. Option C results from an incomplete calculation that ignores years’ purchase, while option D is merely the weighted average profit and has no direct role as the final premium.

Normal profit is calculated by applying the normal rate of return to the capital employed. Here, normal profit is \\(₹4,00,000\\times15/100=₹60,000\\). Average profit is ₹85,000, so super profit is the excess of average profit over normal profit: \\(₹85,000-₹60,000=₹25,000\\).

Goodwill based on three years’ purchase of super profit is \\(₹25,000\\times3=₹75,000\\). Therefore option A is correct. The figure ₹60,000 is only the normal profit, not goodwill. The amount ₹2,55,000 would incorrectly multiply average profit, and ₹25,000 is only one year’s super profit. Each stage must be kept separate.

Super profit is (₹30000) and total goodwill is (₹60000). New partner's share is (₹60000 \times 1/6=₹10000).

Goodwill premium brought by an incoming partner is credited to the sacrificing old partners in their sacrificing ratio. B’s share of the sacrifice is \(1/(2+1)=1/3\). Therefore, the amount credited to B’s Capital Account is \(₹20,000\times1/3=₹6,666.67\) approximately. The old profit-sharing ratio of 3:1 is not used for this distribution. Exam tip: Apply the stated sacrificing ratio directly when allocating goodwill premium.

Estimated total capital is (₹200000) and actual total capital is (₹210000). Since actual capital is higher, hidden goodwill is taken as zero.

Estimated total capital is (₹90000 \div 3/10=₹300000). Actual total capital is (₹270000), so goodwill is (₹30000).

New partner's premium is (₹180000 \times 1/6=₹30000). The second partner's part is (3/5), so (₹18000) is credited.

Premium for goodwill is given only to sacrificing partners. An old partner who gains is not a sacrificing partner.

Old shares are (2/5,3/5) and new shares are (3/10,4/10). Sacrifices are (1/10) and (2/10), so the ratio is (1:2).

Old partners are credited with the full premium (₹30000). Cash and adjustment are only modes of payment.

The direct answer is option A: Half credit will remain. When the new partner brings a goodwill premium, the old partners are credited for the amount they are entitled to receive according to the sacrificing ratio. If the full credited amount is not withdrawn, the withdrawn part reduces cash and the unwithdrawn part continues to remain in the partners’ capital accounts. Suppose the premium credited to old partners is ₹20,000 in total. If they withdraw only half, ₹10,000 is withdrawn and ₹10,000 remains credited in their capital accounts. Option A is correct because only half of the credit has been removed. Option B, full credit will be removed, would be true only if the entire credited amount were withdrawn. Option C, capital will double, is not supported; withdrawal or retention does not automatically double capital. Option D, bank will have no effect, is wrong because the amount withdrawn is paid through bank, so bank balance decreases by the withdrawn amount. The important distinction is between crediting the premium and withdrawing it. Memory cue: unwithdrawn credit stays in capital; withdrawal affects bank.

The direct answer is option A, ₹9,000. The new partner’s total goodwill premium is found first: Total goodwill × new partner’s share = ₹1,00,000 × 1/5 = ₹20,000. However, the question asks for the amount from the cash part actually brought, which is ₹12,000. This cash is distributed to the old partners in the sacrificing ratio 3:1. The total parts are 3 + 1 = 4. The first old partner receives 3/4 of ₹12,000: ₹12,000 × 3/4 = ₹9,000. Option A is correct. Option B, ₹15,000, would be more than the first partner’s proper three-fourths share. Option C, ₹12,000, gives the entire cash amount to the first partner and ignores the second partner. Option D, ₹20,000, is the total goodwill premium required, not the first partner’s cash distribution. The goodwill calculation explains the full premium, but because only ₹12,000 is brought in cash, the cash distribution is based on ₹12,000. Exam cue: distribute actual cash brought in the sacrificing ratio.

Private payment is outside the firm, so no entry is made in the firm's books. In exams separate private payment from firm payment.

Goodwill premium brought in by the incoming partner is credited to the sacrificing partners in their sacrificing ratio. Here, the sacrificing ratio is the old profit-sharing ratio, 5:4. Therefore, B’s share is \(\frac{4}{9}\) of the premium. Thus, B receives \(₹27,000 \times \frac{4}{9} = ₹12,000\). The ₹9,000 option incorrectly treats C’s 1/3 profit share as B’s share of goodwill. Exam tip: Always distribute goodwill premium in the sacrificing ratio, not according to the incoming partner’s share.

Goodwill premium is distributed among the old partners in their sacrificing ratio. Here, the sacrificing ratio is \(\frac{1}{10}:\frac{1}{5}=1:2\). Thus, the first partner’s share is \(\frac{1}{1+2}=\frac{1}{3}\) of the total premium. Therefore, the amount received is \(₹35,000 \times \frac{1}{3}=₹11,666.67\). ₹17,500 would result from an equal division and ignores the sacrificing ratio. Exam tip: simplify the sacrifice fractions into a ratio before allocating the premium.