Goodwill Settlement

Goodwill is (20000 \times 2.48685=49737). Under annuity method multiply super profit by annuity factor.

Excess amount due is ₹45000 which equals ( \frac{3}{10} ) share. Total hidden goodwill is ₹150000.

Excess amount is ₹60000 and it equals ( \frac{1}{4} ) goodwill share. Total hidden goodwill is ₹240000.

Hidden goodwill is inferred when amount due exceeds adjusted capital. If both are equal no excess goodwill indication exists.

The deceased partner contributed to building firm goodwill. Therefore his share is added to executor account.

The deceased partner is entitled to both his or her share of goodwill and the estimated share of profit earned up to the date of death. Therefore, the partner’s capital or current account is credited with these two items separately. Goodwill represents the value of the partner’s share in the firm’s reputation, whereas profit up to the date of death represents the partner’s share of earnings for that period; they are not the same item. Exam tip: While preparing the deceased partner’s account, identify goodwill, profit up to the date of death, and other adjustments separately.

Goodwill entitlement is linked with partnership up to death. Therefore follow the date given in the question or agreement.

The deceased partner’s share of goodwill is calculated as \(₹2,70,000 \times \frac{2}{9}=₹60,000\). Therefore, ₹60,000 will be credited to the executor’s account. ₹45,000 represents only \(\frac{1}{6}\) of the goodwill, so it is incorrect. Exam tip: Multiply the total goodwill by the deceased partner’s profit-sharing ratio.

Gaining partners bear the goodwill burden. The deceased partner share is credited to executor account.

Statement A is incorrect because the new ratio and the gaining ratio are different concepts. The gaining ratio represents the increase in the shares of the continuing partners who acquire the retiring partner’s share; it is determined from the difference between their new and old shares. The retiring partner’s share of goodwill is generally calculated using the old profit-sharing ratio, and existing goodwill is written off in the old ratio. In an examination, distinguish carefully among the old ratio, new ratio and gaining ratio.

For goodwill burden actual gain must be identified. Therefore compare new share with old share.

When new ratio is not given the old mutual ratio is assumed to continue. Goodwill burden can be divided on that basis.

Revaluation relates to the old firm period so it is shared in old ratio. Goodwill burden falls on gaining partners.

General reserve is accumulated earning of old partners. Goodwill burden is linked with those who gain future profit share.

In direct method only capital accounts are debited and credited. Therefore no new goodwill asset is created.

First goodwill is raised for the old firm. Therefore all old partners are credited in old ratio.

In memorandum method goodwill is finally removed from the new firm. Therefore it is written off in continuing partners new ratio.

Goodwill adjustment is not sale or purchase of goods. It is redistribution of rights and burdens among partners.

Old goodwill is an asset of old firm so it should be removed first. Then fresh retirement goodwill is adjusted separately.

C debit in old goodwill is ₹10000 and credit in new goodwill is ₹20000. Net effect is ₹10000 credit.

C debit for old goodwill is ₹9000 and credit for new goodwill is ₹20000. Therefore net credit is ₹11000.

Private payment does not affect firm assets or liabilities. Therefore no entry is passed in firm books.

Q’s share is 3/10. P’s gain is 3/5 − 1/2 = 1/10, while R’s gain is 2/5 − 1/5 = 1/5. Thus, the gaining ratio is 1:2. The goodwill of ₹60,000 is therefore borne by P and R in the amounts of ₹20,000 and ₹40,000 respectively, while Q’s Capital Account is credited with ₹60,000. Since the goodwill account is not raised, the adjustment is made directly through the partners’ capital accounts. Exam tip: calculate each continuing partner’s gain from the old and new ratios before applying the gaining ratio to goodwill.

Old ratio is used to calculate entitlement and gaining ratio is used to distribute burden. This is the main rule of retirement goodwill adjustment.

The direct answer is A. Goodwill adjustment is compensation for the change in profit-sharing rights. To calculate it fairly, compare each partner’s old share with the new share. A partner whose share increases is a gainer and receives an extra profit benefit; a partner whose share decreases is a sacrificer and gives up profit. The gainer must bear the goodwill burden in proportion to the actual gain, so the gain and sacrifice must be identified and matched. Option A is correct because the burden falls on actual gainers. Option B is wrong because partners do not automatically pay equally; payment depends on their gains. Option C is wrong because goodwill is an intangible business value and need not always be cash; it may be adjusted through capital or current accounts. Option D is wrong because the old ratio is essential for finding the old share and therefore the gain or sacrifice. The reasoning chain is: old ratio gives old share; new ratio gives new share; comparison gives gain or sacrifice; goodwill is charged to gainers and credited to sacrificers. Exam cue: never use the new ratio alone.