Goodwill Settlement

Under the average-profit method, goodwill is calculated by multiplying the average annual profit by the agreed number of years’ purchase. Here the average profit is ₹20,000 and the valuation is three years’ purchase. Therefore, goodwill = ₹20,000 × 3 = ₹60,000. The correct choice is C.

The phrase “three years’ purchase” means that the business reputation is valued as three times the normal average profit, not that ₹3,000 or a separate three-year expense is involved. The answer is an asset value used in the partners’ adjustment, while the calculation itself is straightforward multiplication. Choices ₹40,000, ₹50,000 and ₹80,000 do not follow from the given average profit and multiplier.

Average profit = (₹30,000 + ₹35,000 + ₹40,000) ÷ 3 = ₹35,000. Goodwill at two years’ purchase = ₹35,000 × 2 = ₹70,000. Therefore, C’s share = ₹70,000 × \(\frac{1}{4}\) = ₹17,500, so option B is correct. The key exam step is to calculate goodwill first and then apply the partner’s share; ₹15,000 would result from using an incorrect goodwill amount.

Super profit is ₹15000 and goodwill at 2 years purchase is ₹30000. Under super profit method deduct normal profit first.

Capitalized value is (72000 \times \frac{100}{12}=600000). Goodwill is ₹600000 minus ₹500000 which is ₹100000.

Excess payment is ₹15000 which equals his ( \frac{1}{4} ) share of goodwill. Therefore total hidden goodwill is ₹60000.

The deceased partner goodwill share is credited to his executor account. It is treated as part of the amount due on death.

The direct answer is A, both are separate rights. A deceased partner’s claim includes the partner’s share of goodwill and the partner’s share of profit earned up to the date of death. These arise from different bases. Goodwill compensation is connected with the value of the firm’s reputation and the deceased partner’s old share. Profit up to death is calculated for the period during which that partner worked, often using time or sales information and an agreed profit estimate. Option A is correct because one right does not cancel the other. Option B is wrong because the two amounts depend on different facts and need not be equal. Option C is wrong because profit is not normally deducted from goodwill; both are separately calculated credits. Option D is wrong because receiving profit does not remove the goodwill entitlement. The final amount payable may combine several items, but combining them in the final account does not make them the same item. Remember: goodwill is a reputation claim, while profit is a period-of-work claim.

Revaluation profit or loss is shared among all old partners in old ratio. Goodwill burden is borne by gaining partners.

Under the new ratio, A’s share is \(\frac{3}{5}\) and B’s share is \(\frac{2}{5}\). A’s gain is \(\frac{3}{5}-\frac{1}{2}=\frac{1}{10}\), while B’s gain is \(\frac{2}{5}-\frac{1}{3}=\frac{1}{15}\). Therefore, the gaining ratio is \(\frac{1}{10}:\frac{1}{15}=3:2\), so option A is correct. Exam tip: Gaining ratio is calculated as new share minus old share for each gaining partner.

If the mutual ratio of continuing partners does not change the gain is assumed in the same old mutual ratio. This is a common exam rule.

When old goodwill is written off, the partners’ capital or current accounts are debited in the old profit-sharing ratio. B’s share is 3/(5+3+1) = 3/9. Therefore, the amount debited to B’s account is ₹45,000 × 3/9 = ₹15,000. Amounts such as ₹10,000 or ₹25,000 do not represent B’s correct three-part share of the total nine parts. Exam tip: old goodwill written off is adjusted in the old ratio.

B's share in the old profit-sharing ratio is \(\frac{3}{10}\). Therefore, B's share of goodwill = ₹120000 × \(\frac{3}{10}\) = ₹36000. This amount is adjusted in B's capital/current account and becomes payable to the executor. Exam tip: For a partner's death or retirement, calculate the goodwill share using the old profit-sharing ratio unless the question specifies otherwise.

Gaining partners receive a higher future profit share. Therefore they bear the goodwill burden.

When goodwill is adjusted through capital accounts there is no direct entry in profit and loss account. It is a partners capital adjustment matter.

When goodwill account is not opened it is not shown as a new asset in the balance sheet. Only capital accounts are adjusted.

Old goodwill belongs to the old partners interest. Therefore it should be adjusted in old ratio before reconstitution.

C’s old share is 1/4 because the old ratio 2:1:1 has a total of four parts. The continuing partners’ new shares are A = 3/4 and B = 1/4. A’s gain is therefore 3/4 − 2/4 = 1/4, while B’s gain is 1/4 − 1/4 = 0. Since only A gains from C’s retirement, A alone must compensate C for the goodwill share. C’s goodwill share is ₹40,000 × 1/4 = ₹10,000. Hence option A is correct. B does not bear any amount because his share remains unchanged. The amounts ₹7,500 and ₹2,500 would be possible only if both partners had gained in a 3:1 proportion, which they have not.

Under the old ratio, A’s share was \(5/10=1/2\), while under the new ratio it becomes \(2/3\). Thus, A gains \(2/3-1/2=1/6\). B’s share falls from \(4/10=2/5\) to \(1/3\), so B sacrifices a part of the share. Therefore, only A actually gains. Exam tip: Calculate gain or sacrifice as new share minus old share.

A share increases from ( \frac{3}{6} ) to ( \frac{2}{3} ) and B share remains ( \frac{2}{6} ). So only A gains.

The retiring partner receives goodwill entitlement and does not bear its burden. The burden is generally borne by gaining partners.

The retiring partner’s goodwill share is \(\frac{2}{15}\) of \(₹75000\). So, \(\frac{2}{15}\times ₹75000=2\times ₹(75000/15)=2\times ₹5000=₹10000\).

The deceased partner goodwill share is credited to executor account. This increases the amount payable to the executor.

The retiring partner will not share future profits so his old profit share is used. It is the basis of his goodwill entitlement.

When adjustment is made through capital accounts no new goodwill asset is created. Therefore total assets are not directly affected.

Average profit = (₹30,000 + ₹40,000 + ₹50,000 + ₹60,000) ÷ 4 = ₹45,000. Goodwill at two years’ purchase = Average profit × Number of years’ purchase = ₹45,000 × 2 = ₹90,000. Therefore, option C is correct. Exam tip: multiply the average profit by the specified years’ purchase, not the total profit.