Goodwill Accounting

From the old ratio 3:2, the old partners’ former shares were 3/5 and 2/5. The first partner’s sacrifice is 3/5 − 1/2 = 1/10, while the second partner’s sacrifice is 2/5 − 1/4 = 3/20. Thus, the sacrificing ratio is 1/10 : 3/20 = 2:3. Exam tip: calculate each partner’s sacrifice as old share minus new share; do not use the incoming partner’s share alone to determine the ratio.

New partner's premium is (₹75000 \times 2/5=₹30000). First and third together have (4/5), so they receive (₹24000).

Goodwill premium is based on new share and distribution is based on sacrificing ratio. This order reduces mistakes in exams.

New partner's premium is (₹120000 \times 1/4=₹30000). In sacrificing ratio (2:1), A gets (₹20000).

New partner's premium is (₹100000 \times 1/5=₹20000). In old ratio (4:1), B's part is (1/5), so he gets (₹4000).

Existing goodwill is written off in old ratio. The second partner's share is (3/9), so (₹24000) is debited.

The direct answer is option A, ₹10,000. The incoming partner’s required goodwill premium is calculated from the firm’s total goodwill and the share received. Required premium = ₹1,80,000 × 1/6 = ₹30,000. The partner brings only ₹20,000 in cash. Therefore, the goodwill not brought, or the balance to be adjusted, is ₹30,000 − ₹20,000 = ₹10,000. Option A is correct. Option B, ₹30,000, is the total premium required before considering the cash brought. Option C, ₹20,000, is the cash actually brought, not the unpaid balance. Option D, ₹50,000, is greater than the total amount required and therefore cannot be the remaining amount. The key is to calculate the new partner’s share of goodwill first, then subtract the amount actually paid. The result is positive because the cash brought is less than the required premium. Memory cue: total goodwill × incoming share gives required premium; subtract cash to find the balance.

An abnormal profit is not treated as a recurring profit, so it must be deducted from the average profit. Adjusted average profit = ₹85,000 − ₹10,000 = ₹75,000. Therefore, goodwill = ₹75,000 × 4 = ₹3,00,000. Exam tip: when abnormal profit is included in the average profit, subtract it before multiplying by the years’ purchase; ₹3,40,000 results from adding it instead.

Weighted average profit is ((40000+120000+240000)/6=₹66666.67). Goodwill is (₹66666.67 \times 2=₹133333.33).

Normal profit = Capital × Normal Rate of Return = ₹7,00,000 × 12% = ₹84,000. Super profit = Average Profit − Normal Profit = ₹1,10,000 − ₹84,000 = ₹26,000. Therefore, option A is correct. Option B is the normal profit, not the super profit. Exam tip: calculate normal profit first and subtract it from average profit.

Direct answer: Option A, ₹24,000. The rule is: goodwill equals super profit multiplied by years’ purchase. First calculate total goodwill: ₹32,000 × 3 = ₹96,000. The new partner takes one-fourth share, so his goodwill premium is ₹96,000 × 1/4 = ₹24,000. Option A is therefore correct. Option B, ₹96,000, is the total goodwill of the firm, not the new partner’s one-fourth share. Option C, ₹32,000, is only the super profit and does not include the three years’ purchase. Option D, ₹8,000, does not follow the required multiplication and is too small. The calculation must be done in two stages: find the firm’s total goodwill, then find the incoming partner’s proportionate premium. Memory cue: total goodwill = super profit × years’ purchase; premium = total goodwill × new share.

Under the capitalization of average profit method, the capitalized value of the business is ₹90,000 ÷ 15% × 100 = ₹6,00,000. Goodwill = capitalized value − actual capital = ₹6,00,000 − ₹5,20,000 = ₹80,000. Option B is only the capitalized value, not goodwill. Exam tip: subtract actual capital from capitalized value to find goodwill under this method.

Under the capitalization of super profit method, goodwill = Super Profit × 100 ÷ Normal Rate of Return. Therefore, goodwill = ₹24,000 × 100 ÷ 12 = ₹2,00,000. Option B results from multiplying by 12, which is not the correct procedure for this method. Exam tip: Convert the percentage into a decimal and divide: ₹24,000 ÷ 0.12 = ₹2,00,000.

A's sacrifice is (1/8) and B's sacrifice is (1/24). Premium is (₹16000), and in sacrificing ratio (3:1), A gets (₹12000).

Old shares were (6/10,3/10,1/10) and new shares are (5/10,3/10,1/10). Only the first partner sacrificed (1/10).

Estimated total capital is (₹70000 \div 1/5=₹350000). Actual total capital is (₹260000+₹70000=₹330000), so goodwill is (₹20000).

Estimated total capital is (₹360000). Actual total capital is (₹370000), so hidden goodwill does not arise.

The bank initially receives the full cash goodwill premium of ₹48,000, so Bank increases by that amount. The old partners subsequently withdraw 25% of the premium, which is ₹48,000 × 25/100 = ₹12,000. Withdrawal reduces the bank balance. Therefore, net increase in Bank = ₹48,000 − ₹12,000 = ₹36,000. The sacrificing ratio affects how the premium is credited between partners, but it does not change the total cash withdrawn when the question gives a combined 25%. Hence option A is correct; option C is only the withdrawal and option B ignores it.

The direct answer is A: Bank will be credited by ₹15,000 when the second partner withdraws his full share. The new partner brings total goodwill cash of ₹36,000. Sacrificing partners receive it in the sacrificing ratio 7:5, whose total is 12. The second partner’s share is \(₹36,000\times5/12=₹15,000\). Initially, receipt of cash debits Bank and credits the sacrificing partners’ accounts. When the second partner withdraws the amount, his account is debited and Bank is credited by ₹15,000. Option A is correct. Option B is the first partner’s share, \(₹36,000\times7/12=₹21,000\). Option C is the entire receipt, not the second partner’s withdrawal. Option D divides the amount equally, ignoring 7:5. Follow the ratio before recording withdrawal.

The incoming partner’s agreed share is 1/5, so the goodwill premium required from that partner is 1/5 of ₹150,000, which equals ₹30,000. The partner brings only ₹18,000 in cash, leaving a shortfall of ₹12,000. The sacrificing ratio is 2:3, so the second old partner’s share of the total premium is 3/5. The total credit due to that partner is therefore 3/5 of ₹30,000 = ₹18,000. Of this, ₹10,800 comes from the cash actually brought, and the remaining ₹7,200 is adjusted for the unpaid portion, if the accounting treatment requires that deficiency. Hence option A is correct.

The key word is “total.” If the question asked only for the cash premium actually distributed, the second partner would receive 3/5 of ₹18,000, or ₹10,800. But it asks for the total credit, including the amount due for the full agreed premium. The goodwill valuation is therefore relevant, and the shortfall cannot simply be ignored. This distinction explains why ₹18,000, rather than ₹10,800, is the correct choice under the stated wording.

When the incoming partner does not bring goodwill in cash, the goodwill amount is adjusted through the capital or current accounts of the old partners in their sacrificing ratio. The total parts of the ratio 2:3:1 are 2 + 3 + 1 = 6. The second old partner has 3 parts, so that partner’s share of the adjustment is ₹42,000 × 3/6 = ₹21,000. Therefore, ₹21,000 is credited to the second old partner because that partner sacrifices three-sixths of the old profit share. ₹14,000 represents two parts, ₹7,000 represents one part, and ₹42,000 is the full amount rather than the second partner’s share.

New partner's goodwill is (₹96000 \times 1/8=₹12000). If cash is not brought, this amount is debited to his account.

Old shares are (8/15,7/15) and new shares are (5/12,4/12). Sacrifices are (7/60) and (8/60), so the ratio is (7:8).

First partner's sacrifice is (4/7-3/7=1/7) and second partner's sacrifice is zero. So the whole premium goes to first partner.

A’s old share was 3/5, so A’s sacrifice is 3/5 − 1/2 = 1/10. The old partners together sacrifice C’s 1/5 share. Therefore, B’s sacrifice is 1/5 − 1/10 = 1/10.