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Subjects
Class 12AccountancyReconstitution - Retirement or Death of a PartnerGoodwill SettlementMedium
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The profits for four years are ₹25,000, ₹35,000 and ₹45,000 and ₹55,000, respectively. If goodwill is valued at 2 years’ purchase, what will be the amount of goodwill?

Answer and explanation

Correct answer: ₹80,000

Average profit = (₹25,000 + ₹35,000 + ₹45,000 + ₹55,000) ÷ 4 = ₹40,000. Goodwill at 2 years’ purchase = Average Profit × Number of Years’ Purchase = ₹40,000 × 2 = ₹80,000. ₹40,000 is only the average profit, not the value of goodwill. In the examination, calculate the average profit first and then multiply it by the years’ purchase.

Related tags

GoodwillAverage ProfitYears PurchasePartnership 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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