Goodwill Settlement

The retiring partner entitlement is calculated from old profit share. The burden is divided among gaining partners in gaining ratio.

A share rises from ( \frac{2}{10} ) to ( \frac{4}{5} ) and B share falls. Therefore only A actually gains.

A gain is ( \frac{3}{5}-\frac{4}{10}=\frac{2}{10} ) and B gain is ( \frac{2}{5}-\frac{1}{10}=\frac{3}{10} ). So the ratio is 2:3.

A gain is ( \frac{1}{3}-\frac{3}{12}=\frac{1}{12} ) and C gain is ( \frac{2}{3}-\frac{5}{12}=\frac{3}{12} ). So the ratio is 1:3.

A gain is ( \frac{3}{5}-\frac{5}{10}=\frac{1}{10} ) and B gain is ( \frac{2}{5}-\frac{2}{10}=\frac{2}{10} ). So the ratio is 1:2.

A gain is ( \frac{2}{5}-\frac{1}{10}=\frac{3}{10} ) and C gain is ( \frac{3}{5}-\frac{3}{10}=\frac{3}{10} ). Therefore the ratio is 1:1.

B share falls from ( \frac{5}{10} ) to ( \frac{3}{10} ). Therefore B is the sacrificing continuing partner.

If new ratio is absent the old mutual ratio of continuing partners is assumed to continue. This is used for goodwill burden.

The total profit-sharing ratio is \(7+3+5=15\), so A’s share of goodwill is \(\frac{7}{15}\). Therefore, A’s executor should receive \(₹225000\times\frac{7}{15}=₹105000\). The amount ₹90000 results from using an incorrect fraction instead of A’s share. In such questions, first find the total ratio and then apply the deceased partner’s ratio to the firm’s goodwill.

B’s share in the profit-sharing ratio is \(\frac{7}{2+7+3}=\frac{7}{12}\). Therefore, B’s share of goodwill is \(₹1,68,000 \times \frac{7}{12}=₹98,000\). The nearby distractor ₹84,000 results from incorrectly taking one-half of the goodwill, whereas B’s actual fraction is \(\frac{7}{12}\). Exam tip: Always divide the partner’s ratio by the sum of all partners’ ratios before calculating the share of goodwill.

Total goodwill is (62500 \times \frac{16}{5}=200000). In reverse calculation divide the received share by the fraction.

The retiring partner share is ₹45000. In 4:5 the second partner burden is (45000 \times \frac{5}{9}=25000).

The retiring partner share is ₹50000. In 3:2 the first partner burden is (50000 \times \frac{3}{5}=30000).

B sacrifice is ( \frac{4}{10}-\frac{2}{7}=\frac{4}{35} ). Therefore compensation is (140000 \times \frac{4}{35}=16000).

B gain is ( \frac{2}{5}-\frac{1}{10}=\frac{3}{10} ). Therefore B burden is (200000 \times \frac{3}{10}=60000).

When old goodwill is written off, its book value is debited to the partners’ capital or current accounts in their old ratio. B’s share is \(\frac{4}{3+4+4}=\frac{4}{11}\). Hence, the amount debited to B’s account is \(₹1,54,000 \times \frac{4}{11}=₹56,000\). ₹48,000 results from applying an incorrect fraction instead of 4/11. Exam tip: Identify whether the adjustment uses the old ratio or the new ratio before calculating the partner’s share.

The retiring partner gives up a right to future profits. Hence, the continuing partners bear the goodwill adjustment and their capital accounts are debited in the gaining ratio. Use gaining ratio, not merely the new ratio, in exams.

B debit for old goodwill is ₹33000 and credit for new goodwill is ₹60000. Net effect is ₹27000 credit.

C debit for old goodwill is ₹32000 and credit for new goodwill is ₹60000. Therefore net credit is ₹28000.

Dividing ₹50000 in 3:2 gives ₹30000 and ₹20000. Gaining partners are debited and retiring partner is credited.

Goodwill is first raised for the old firm. Therefore all old partners are credited in old ratio.

Weighted average is ( \frac{60000+180000+360000}{6}=100000). At 2.5 years purchase goodwill is ₹250000.

The adjusted third year profit is ₹80000. Adjusted total profit is ₹260000 so at 3 years purchase goodwill is ₹260000.

The adjusted second year profit is ₹120000 and average profit is ₹110000. At 2 years purchase goodwill is ₹220000.

Adjusted average profit = ₹1,80,000 − ₹30,000 = ₹1,50,000. Super profit = adjusted average profit − normal profit = ₹1,50,000 − ₹1,20,000 = ₹30,000. Therefore, goodwill = super profit × years’ purchase = ₹30,000 × 4 = ₹1,20,000. ₹1,80,000 is not the super profit because the managerial salary must first be deducted. Exam tip: calculate adjusted average profit first, then super profit, and finally multiply it by the years’ purchase.