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Subjects
Class 12AccountancyReconstitution - Retirement or Death of a PartnerGoodwill SettlementMedium
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The average profit is ₹36,000, and goodwill is valued at 2.5 years’ purchase. What will be the value of goodwill?

Answer and explanation

Correct answer: ₹90,000

Under the average profit method, goodwill = average profit × number of years’ purchase. Therefore, goodwill = ₹36,000 × 2.5 = ₹90,000. The amount ₹1,08,000 would result from incorrectly using 3 years’ purchase. Exam tip: Always multiply the average profit by the specified years’ purchase.

Related tags

GoodwillAverage Profit MethodGoodwill ValuationPartnership AccountsGoodwill SettlementReconstitution Retirement Or Death Of A PartnerAccountancyClass 12 Mcq
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10 more MCQs
  1. 1A retires, and the gaining ratio of B and C is 1:3. The goodwill adjustment is ₹40,000. How much of the goodwill adjustment will C bear?
  2. 2What is the correct formula of gaining ratio?
  3. 3If the deceased partner’s share of goodwill is ₹180000 and the continuing partners’ gaining ratio is 5:4, what is the burden of the first continuing partner?
  4. 4What is the main purpose of settling goodwill when a partner retires?
  5. 5When a firm's goodwill is valued at a partner's retirement, what determines the retiring partner's share of that goodwill?
  6. 6What are partners called when their share of profit increases after another partner retires?
  7. 7In what ratio do the continuing partners usually bear the goodwill compensation payable to a retiring partner?
  8. 8If goodwill is not to be shown in the books, which account is credited with the retiring partner's share of goodwill in the adjustment entry?
  9. 9In the usual goodwill adjustment entry on retirement, what happens to the capital accounts of the gaining partners?
  10. 10The firm's total goodwill is ₹60,000 and the retiring partner's old share is 1/3. What is the value of that partner's share of goodwill?
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