Goodwill Settlement

Correct answer: A. When they compensate the retiring partner for goodwill

Gaining partners receive the benefit of goodwill so their capital accounts are debited. In exams link the debit side with those who gain.

Correct answer: A. Because he has to receive goodwill compensation

The retiring partner is entitled to his share of goodwill. In exams connect the receiver with credit.

Correct answer: A. Debit gaining partners capital accounts and credit retiring partner capital account

Under the modern method adjustment is made without opening a goodwill account. In exams identify hidden goodwill through capital adjustment.

Correct answer: A. Gaining ratio

On retirement the burden of goodwill is borne by gaining partners in gaining ratio. In exams always calculate the gaining ratio.

Correct answer: A. A and B

After C retires A and B will earn future profits so they bear the burden. In exams look at the continuing partners.

Correct answer: A. ₹30000

A share is (3/5) so (3/5) of ₹50000 is ₹30000. In exams calculate retiring share from the old ratio.

Correct answer: A. Deceased partner capital account

The deceased partner entitlement is added to his capital account. In exams apply the retirement rule in death cases too.

Correct answer: A. Goodwill is valued and properly adjusted

Goodwill is a right so it is valued and adjusted properly. In exams check goodwill settlement even if the deed is silent.

Correct answer: A. ₹30000

(1/3) of ₹90000 is ₹30000. In exams calculate goodwill claim as total goodwill multiplied by old share.

Correct answer: A. By methods like average profit or super profit

Goodwill value is based on profit earning capacity. In exams connect valuation methods with profits.

Correct answer: A. ₹60,000

The governing concept is the average profit method of goodwill valuation. Under this method, goodwill is found by multiplying the average maintainable profit by the number of years’ purchase agreed by the partners. The formula is: Goodwill = Average Profit × Years’ Purchase. Substituting the figures given, Goodwill = ₹20,000 × 3 = ₹60,000. Option B simply repeats the average profit and ignores the three-year multiplier. Option C would require a different profit or period, while option D would correspond to four years at the same average profit. Since the question explicitly states three years’ purchase, the calculated value is ₹60,000, so option A is unambiguously correct.

Correct answer: A. ₹20000

The correct answer is A: ₹20,000. First add the ratio parts: 5 + 3 + 2 = 10. C's old profit-sharing fraction is therefore 2/10, or 1/5. Goodwill of the whole firm is ₹100,000, so C's share is ₹100,000 × 2/10 = ₹20,000. This is the amount considered for the retiring partner's goodwill claim, subject to the partnership agreement and the stated accounting treatment. Option A is correct because C's ratio part is 2. Option B, ₹30,000, uses B's ratio part 3. Option C, ₹50,000, uses A's ratio part 5. Option D, ₹10,000, would represent only 1/10 and does not match C's stated share. The ratio must be used as a fraction of the total, not as a percentage of the wrong base. Exam cue: retiring partner's goodwill share equals total goodwill multiplied by that partner's old fraction.

Correct answer: A. ₹6,000 each

The retiring partner’s goodwill share of ₹12,000 is borne by the gaining partners, A and B, in their gaining ratio of 1:1. Thus, each partner’s debit is ₹12,000 × 1/(1+1) = ₹6,000. Debiting ₹12,000 from each partner would charge the total amount twice. Exam tip: Divide the goodwill amount by the sum of the gaining-ratio parts to find each partner’s share.

Correct answer: A. A and B Capital Accounts Dr To C Capital Account

Gaining partners are debited and the retiring partner is credited. In exams note the direction of the entry.

Correct answer: A. It avoids unnecessarily increasing assets

Not opening goodwill account avoids creating an artificial asset in the balance sheet. In exams treat it as capital adjustment method.

Correct answer: A. It is written off among old partners in old ratio

Existing goodwill belongs to all old partners so it is written off in old ratio. In exams first write off existing goodwill.

Correct answer: A. In old profit sharing ratio

Old goodwill relates to all old partners so old ratio applies. In exams remember old goodwill with old ratio.

Correct answer: A. By old profit sharing ratio

The retiring partner entitlement is based on his old profit share. In exams use old ratio for retiring share.

Correct answer: A. It will increase the amount payable to the deceased partner

Goodwill claim is added to the deceased partner capital. In exams add goodwill claim to the payable amount.

Correct answer: A. To distribute the burden of goodwill compensation

Partners who gain bear the goodwill burden in that ratio. In exams use gaining ratio for burden sharing.

Correct answer: A. \(\frac{1}{10}\)

Gain is calculated as the new profit-sharing share minus the old share. Thus, A’s gain = \(\frac{1}{2}-\frac{2}{5}=\frac{5-4}{10}=\frac{1}{10}\). Choosing \(\frac{1}{5}\) results from subtracting the fractions without using a common denominator. Exam tip: convert fractions to a common denominator before subtracting.

Correct answer: A. \(\frac{1}{8}\)

Gaining share = new share − old share. Therefore, B’s gaining share is \(\frac{3}{8}-\frac{1}{4}=\frac{3}{8}-\frac{2}{8}=\frac{1}{8}\). Option C is only the old share, not the gain. In an exam, use the formula new share − old share to calculate a partner’s gaining share.

Correct answer: A. ₹20000

The correct answer is A: ₹20,000. The deceased partner's goodwill entitlement is calculated from the firm's total goodwill in proportion to that partner's old share. Here the total goodwill is ₹120,000 and the share is 1/6. Calculate ₹120,000 ÷ 6 = ₹20,000, or equivalently ₹120,000 × 1/6 = ₹20,000. This amount is credited or allowed to the deceased partner's capital or current account and ultimately goes to the legal heirs according to the settlement. Option A is correct. Option B, ₹60,000, is one-half of the goodwill, not one-sixth. Option C, ₹120,000, is the entire firm's goodwill, not the partner's fraction. Option D, ₹10,000, is too small and would correspond to 1/12 of ₹120,000. The calculation assumes the question asks for the partner's share of goodwill and gives no separate agreement changing the treatment. Memory cue: total goodwill divided by the denominator gives the 1/6 share.

Correct answer: A. 3/8

A retiring partner’s goodwill share is calculated using that partner’s fraction in the old profit-sharing ratio. The old ratio is 3:3:2, so the total number of parts is 3 + 3 + 2 = 8. A has three of these eight parts; therefore A’s goodwill fraction is 3/8. The denominator must include all partners, including C, so 3/6 is incorrect because it omits C’s two parts. The fraction 2/8 is C’s old share, not A’s, and 1/8 does not represent any partner’s share in the stated ratio. Thus option A is the only fraction that correctly reflects A’s old entitlement and is the correct answer.

Correct answer: A. Because it affects partners rights and burdens

Goodwill affects partners capital balances. In exams connect goodwill adjustment with partners capital accounts.