Goodwill Settlement

Correct answer: C. ₹700000

Capitalized value is (250000 \times \frac{100}{10}=2500000). Goodwill is ₹2500000 minus ₹1800000 which is ₹700000.

Correct answer: C. ₹142644

Goodwill is (45000 \times 3.16986=142643.7) which is approximately ₹142644. Use the annuity factor in this method.

Correct answer: C. ₹240000

The excess ₹84000 is his ( \frac{7}{20} ) goodwill share. Total hidden goodwill is (84000 \times \frac{20}{7}=240000).

Correct answer: A. Because amount payable increases

Goodwill is the deceased partner entitlement. Therefore executor account is credited to increase the amount payable.

Correct answer: A. He is sacrificing

A negative value means his new share is less than old share. It should be read as sacrifice and not as gain.

Correct answer: A. Directly applying the new ratio

New ratio and gaining ratio may differ. Always compute actual gain by new share minus old share.

Correct answer: A. Super earning capacity

Goodwill is the value of reputation and ability to earn more than normal profit. Therefore earning basis is important.

Correct answer: A. Average profit method uses average profit and super profit method uses excess over normal profit

In average profit method average profit is multiplied by years purchase. In super profit method normal profit is deducted first.

Correct answer: A. Capital employed multiplied by normal rate of return

Normal profit is based on capital and normal rate of return. It is needed before calculating super profit.

Correct answer: A. First write off old goodwill then adjust new goodwill

Old goodwill relates to old partners. New goodwill is considered separately for retirement settlement.

Correct answer: A. Because old and new rights need separate adjustment

Old goodwill is written off in old ratio. New goodwill entitlement and burden are adjusted by a different rule.

Correct answer: A. Goodwill account debit and all old partners capital accounts credit

In memorandum method goodwill is first raised for the old firm. Therefore old partners are credited in old ratio.

Correct answer: A. Continuing partners capital accounts debit and goodwill account credit

If goodwill is not to be kept in the new firm it is written off among continuing partners in new ratio. This closes goodwill account.

Correct answer: A. Adjustment is made only through capital accounts

In direct method goodwill account is not opened. Therefore new goodwill does not become an asset in the balance sheet.

Correct answer: A. His share in general reserve

General reserve is accumulated earning of old partners. It is adjusted separately from goodwill in old ratio.

Correct answer: A. It can reduce the debit balance due

Goodwill share is credited to the retiring partner account. Therefore it can reduce or reverse a debit balance.

Correct answer: A. Amount due may be transferred to his loan account

If cash is not paid the amount due may be kept in the retiring partner loan account. This separates settlement from payment timing.

Correct answer: A. Because firm assets or liabilities are not affected

Private payment is made from partners personal funds. Firm books record only firm transactions.

Correct answer: A. Write off old goodwill, calculate the required new goodwill adjustment, and allocate the burden in the gaining ratio

The governing concept is that goodwill adjustments at reconstitution must reflect both the previous entitlement and the revised entitlement. First identify whether existing goodwill is to be written off or adjusted. Next calculate the required goodwill amount under the stated method. Finally, charge or distribute that amount to the partners who gain from the change, using their gaining ratio, unless the question expressly specifies another basis. This prevents double counting and preserves the correct compensation for sacrificing or gaining partners. Option A is correct. Option B ignores essential old-ratio information, option C concerns an unrelated bank procedure, and option D substitutes capital ratio for the profit-sharing basis without authority.

Correct answer: A. Retiring partner goodwill entitlement in old profit share

The retiring partner goodwill entitlement is based on his old profit share. Then the burden is divided in gaining ratio.

Correct answer: A. Because it shows that the new share exceeds the old share

Gaining ratio = New Profit-Sharing Ratio − Old Profit-Sharing Ratio. A positive difference means that the partner has acquired an additional share from the retiring partner and is therefore a gaining partner who compensates for goodwill. A negative difference represents sacrifice, not gain. Exam tip: Positive difference means gain; negative difference means sacrifice.

Correct answer: A. On the actual gaining partner

Goodwill burden falls on the partner whose future profit share increases. The sacrificing continuing partner may also be compensated.

Correct answer: A. Only A

A share rises from ( \frac{8}{12} ) to ( \frac{5}{6} ) while B share falls. Therefore only A actually gains.

Correct answer: A. Only C

Under the old ratio, A’s share was 4/9, whereas under the new ratio it is 3/7. With a common denominator, A’s share falls from 28/63 to 27/63, so A sacrifices 1/63. C’s share rises from 3/9, or 21/63, to 4/7, or 36/63; therefore, C gains. Hence, only C actually gains from B’s retirement. Exam tip: Compare each continuing partner’s old and new shares; an increase indicates a gaining partner.

Correct answer: A. 3:2

Under the old ratio, A’s share was \(\frac{1}{10}\) and B’s share was \(\frac{4}{10}\). Under the new ratio of 2:3, A’s share becomes \(\frac{4}{10}\) and B’s share becomes \(\frac{6}{10}\). Thus, A’s gain is \(\frac{4}{10}-\frac{1}{10}=\frac{3}{10}\), while B’s gain is \(\frac{6}{10}-\frac{4}{10}=\frac{2}{10}\). Therefore, the gaining ratio is 3:2. Exam tip: Calculate gaining ratio by subtracting each partner’s old share from the new share; do not use the new ratio directly.