All questions of Unit 2: Treatment of Goodwill in Partnership Accounts for CA Foundation Exam

Can any one explain me

Can anyone please explain me.... this question

Old ( psr). new( psr). g/s Ravi 3/5. 2/5. -1/5 =30000 Suraj 2/5. 2/5. 0=00 tarun 0. 1/5. 1/5= 30000 In my opinion this is the way.

A.P = 42000+39000+45000=126000 A.P= 126000/3=42000G/w= 42000×2=84000 is correct answer.

One can only raise purchased goodwill not internally generated goodwill

**Given Information:**

- Capital of partner B = Rs. 90,000
- Capital of partner D = Rs. 30,000
- Profit sharing ratio = 3:1
- New ratio admissible after 01.04.2006 = 5:3
- Goodwill value as on 01.04.2006 = Rs. 80,000

**Calculation of Gaining and Sacrificing Ratio:**

1. The existing profit sharing ratio is 3:1. Let's assume the gaining ratio is a and the sacrificing ratio is b.
- a + b = 4 (3+1)
- The gaining ratio will be (3/4) and the sacrificing ratio will be (1/4).

2. The new profit sharing ratio is 5:3. Let's assume the new gaining ratio is c and the new sacrificing ratio is d.
- c + d = 8 (5+3)
- The new gaining ratio will be (5/8) and the new sacrificing ratio will be (3/8).

**Calculation of Goodwill:**

1. The existing ratio is 3:1 and the new ratio is 5:3. Let's assume the value of the goodwill is x.
- (3/4) = (5/8) * x
- x = (3/4) * (8/5)
- x = 12/5

2. The value of the goodwill as on 01.04.2006 is given as Rs. 80,000.
- (12/5) * y = 80,000
- y = (80,000 * 5)/12
- y = 33,333.33

**Calculation of Amount Payable:**

1. The sacrificing partner is D. The amount payable by the gaining partner (B) to the sacrificing partner (D) can be calculated using the formula:
- Amount Payable = Sacrificing Ratio * Value of Goodwill
- Amount Payable = (3/8) * 33,333.33
- Amount Payable = Rs. 12,499.99

2. Since the amount payable is rounded off to the nearest whole number, the correct answer is option B: D will pay to B Rs. 10,000.

Therefore, option B is the correct answer.

Answer is 1400000

Avg of last 3 profit is (42000+45000+39000)/3=42000
no. of purchase year is 2 i.e 42000*2= 84000 is firm's goodwill

Given: A's capital = Rs. 50,000, B's capital = Rs. 40,000, C's capital = Rs. 50,000
Goodwill in Balance sheet = Rs. 20,000
Goodwill revalued as Rs. 35,000

Step-by-step solution:
1. Total capital after C's admission = Rs. 1,40,000 (50,000+40,000+50,000)
2. Old ratio of A and B = 5:4
3. New ratio of A, B, and C = 5:4:5
4. Goodwill brought by C = 0 (as nothing was bought against goodwill)
5. Goodwill revalued at Rs. 35,000 will be divided among the partners in their new sharing ratio i.e., 5:4:5
6. Goodwill share of A = (5/14) * 35,000 = Rs. 12,500
7. Goodwill share of B = (4/14) * 35,000 = Rs. 10,000
8. Goodwill share of C = (5/14) * 35,000 = Rs. 12,500
9. Value of goodwill in the books after C's admission = Rs. 35,000 (as the revalued goodwill of Rs. 35,000 is divided among the partners in their new sharing ratio)

Hence, the correct answer is option B) Rs. 35,000.

Here,C gets 1/4th share and takes in 12000 as capital total capital of the firm =12000×4/1=48000 joint capital of all partners= 10000+20000+12000=42000 amount of hidden goodwill =48000-42000=6000

97500

Given:
- A and B are equal partners.
- C is admitted as a partner with a 1/7th share.

To find:
- The new profit sharing ratio of A and B.

Solution:
Step 1: Determine the total number of shares.
Since A and B are equal partners, they each have an equal share. Let's assume their share to be x.
So, A's share = x and B's share = x.
C is admitted with a 1/7th share, so C's share = (1/7)x.

The total number of shares is the sum of the individual shares:
Total shares = A's share + B's share + C's share
Total shares = x + x + (1/7)x
Total shares = (2 + 1/7)x
Total shares = (15/7)x

Step 2: Determine the new profit sharing ratio.
The new profit sharing ratio is determined by dividing each partner's share by the total shares.

A's new profit sharing ratio = A's share / Total shares
A's new profit sharing ratio = (x) / ((15/7)x)
A's new profit sharing ratio = 1 / (15/7)
A's new profit sharing ratio = 7/15

B's new profit sharing ratio = B's share / Total shares
B's new profit sharing ratio = (x) / ((15/7)x)
B's new profit sharing ratio = 1 / (15/7)
B's new profit sharing ratio = 7/15

Therefore, the new profit sharing ratio of A and B is 7/15 : 7/15, which can be simplified to 1/3 : 1/3.

Step 3: Simplify the ratio.
The new profit sharing ratio can be simplified by dividing both sides by the common factor of 1/3.
1/3 : 1/3 = (1/3)/(1/3) : (1/3)/(1/3)
1/3 : 1/3 = 1 : 1

Hence, the new profit sharing ratio of A and B is 1 : 1, which is equivalent to 3/7 : 3/7. Therefore, the correct answer is option 'B'.

Given information:
- Capital of B = Rs. 90,000
- Capital of D = Rs. 30,000
- Profit sharing ratio = 3:1
- New ratio = 5:3
- Goodwill value = Rs. 80,000
To find: Amount payable by a gaining partner to a sacrificing partner.
Calculation:
1. The total capital of the firm = Capital of B + Capital of D = Rs. 90,000 + Rs. 30,000 = Rs. 1,20,000.
2. The old profit sharing ratio is 3:1, which means B will get 3/4th of the profit and D will get 1/4th of the profit.
3. The new ratio is 5:3, which means B will get 5/8th of the profit and D will get 3/8th of the profit.
4. The change in ratio is from 3:1 to 5:3, which means B is gaining and D is sacrificing.
5. The gaining partner (B) will compensate the sacrificing partner (D) for the change in ratio.
6. The amount of compensation is calculated as follows:
- Goodwill = Rs. 80,000
- Total capital = Rs. 1,20,000
- Sacrificing partner's share in the total capital = (Capital of D / Total capital) x Goodwill
= (Rs. 30,000 / Rs. 1,20,000) x Rs. 80,000
= Rs. 20,000
7. Therefore, the amount payable by the gaining partner (B) to the sacrificing partner (D) is Rs. 20,000.
Answer: B. D will pay to B Rs. 20,000.

Calculation of Goodwill:
To calculate the value of goodwill, we need to determine the average profit of the business over the given period of time and then multiply it by the number of years of purchase.
Step 1: Calculate the average profit:
Average Profit = (Profit in 2003 + Profit in 2004) / 2
Average Profit = (Rs. 75,000 + Rs. 60,000) / 2
Average Profit = Rs. 67,500
Step 2: Calculate the value of goodwill:
Goodwill = Average Profit * Number of Years of Purchase
Number of Years of Purchase = 5 years (as given in the question)
Goodwill = Rs. 67,500 * 5
Goodwill = Rs. 3,37,500
Therefore, the value of goodwill is Rs. 3,37,500.
Conclusion:
The value of goodwill for the partnership firm is Rs. 3,37,500.

Explanation:

Step 1: Calculate the old profit sharing ratio
B's capital = Rs. 90,000
D's capital = Rs. 30,000
Total capital = Rs. 1,20,000

B's share = 3/4
D's share = 1/4

Step 2: Calculate the new profit sharing ratio
New ratio = 5:3

B's share = 5/8
D's share = 3/8

Step 3: Calculate the gain or loss due to change in profit sharing ratio
B's gain = (5/8 - 3/4) * 1,20,000 = Rs. 15,000
D's loss = (3/8 - 1/4) * 1,20,000 = Rs. 5,000

Step 4: Calculate the new capitals after adjustment
B's new capital = Rs. 1,05,000 (Rs. 90,000 + Rs. 15,000)
D's new capital = Rs. 25,000 (Rs. 30,000 - Rs. 5,000)

Step 5: Calculate the value of goodwill
Goodwill = Rs. 84,000

Step 6: Allocate the goodwill to B and D in their new profit sharing ratio
B's share = 5/8
D's share = 3/8

B's share of goodwill = (5/8) * Rs. 84,000 = Rs. 52,500
D's share of goodwill = (3/8) * Rs. 84,000 = Rs. 31,500

Step 7: Record the journal entry for the allocation of goodwill
B's capital account Dr. Rs. 52,500
D's capital account Dr. Rs. 31,500
To Goodwill account Cr. Rs. 84,000

Note: This is a simplified example and in practice, there may be additional adjustments and entries required. It is recommended to consult a professional accountant for accurate and comprehensive accounting treatment.

Factors affecting goodwill

Goodwill is the intangible asset that represents the reputation and value of a business beyond its tangible assets. It is an important factor in determining the overall value of a business. Several factors can affect the goodwill of a business, including the nature of the business, the efficiency of management, and technical know-how. However, the location of customers does not directly affect goodwill. Let's discuss each factor in detail:

Nature of business:
The nature of the business plays a vital role in determining the goodwill of a company. Some businesses may have a natural advantage due to their industry or market segment. For example, a well-established luxury brand may have a strong reputation and loyal customer base, leading to higher goodwill. On the other hand, businesses operating in volatile or highly competitive industries may have lower goodwill due to the inherent risks and uncertainties.

Efficiency of management:
The efficiency and effectiveness of management can significantly impact the goodwill of a business. Competent and experienced management is more likely to make sound strategic decisions, build strong customer relationships, and maintain a positive brand image. Good management practices, such as effective leadership, transparent communication, and ethical conduct, can enhance the reputation and goodwill of a business.

Technical know-how:
Technical know-how refers to the specialized knowledge, skills, and expertise possessed by a business. This factor is particularly significant in industries that require advanced technology or specialized knowledge. Companies with cutting-edge technology or unique intellectual property often have higher goodwill as they are perceived as leaders in their field. The ability to innovate, adapt to changing market trends, and provide superior quality products or services can contribute to the goodwill of a business.

Location of customers:
Contrary to the options provided, the location of customers does not directly affect goodwill. While the location can impact the sales and profitability of a business, it is not a factor that determines the overall reputation, value, or goodwill. Goodwill is primarily built through customer satisfaction, brand reputation, and positive word-of-mouth, regardless of the geographic location of customers.

In conclusion, the factors that affect goodwill include the nature of the business, the efficiency of management, and technical know-how. The location of customers, however, does not directly impact goodwill.

Understanding the Profit Sharing Ratio
- Initial Ratio: A and B share profits in the ratio of 5:3.
- New Ratio: After the admission of C, the new profit sharing ratio among A, B, and C is 7:5:4.
Calculating Sacrificing Ratio
To find the sacrificing ratio, we need to determine how much A and B have sacrificed in their original profit share to accommodate C.
- Total Parts in New Ratio: 7 + 5 + 4 = 16 parts.
- A's New Share: 7/16
- B's New Share: 5/16
- C's Share: 4/16
Calculating Old Shares
- A's Old Share: 5/8 (since 5 + 3 = 8)
- B's Old Share: 3/8
Calculating Sacrificing Amounts
- A's Sacrifice:
- Old Share: 5/8 = 10/16
- New Share: 7/16
- Sacrifice: 10/16 - 7/16 = 3/16
- B's Sacrifice:
- Old Share: 3/8 = 6/16
- New Share: 5/16
- Sacrifice: 6/16 - 5/16 = 1/16
Determining the Sacrificing Ratio
Now, we can express the sacrificing amounts of A and B in their simplest form:
- A's Sacrifice: 3/16
- B's Sacrifice: 1/16
Thus, the sacrificing ratio of A to B is:
- A:B = 3:1
Conclusion
The correct answer is option 'A' (3:1), indicating that A sacrifices more of their profit share compared to B to accommodate C in the partnership.

Under this method, goodwill is calculated by taking average super profit as the value of an annuity over a certain number of years. The present value of this annuity is computed by discounting at the given rate of interest (normal rate of return). This discounted present value of the annuity is the value of goodwill.

Given:
Profit in 1998-99 = Rs. 2,000
Profit in 1999-2000 = Rs. 26,100 (including defective stock of Rs. 2,200)
Profit in 2000-01 = Rs. 31,200 (including defective stock of Rs. 6,200)

To find: Goodwill on the average profit method

Solution:
Step 1: Calculate the total profits for the three years
Total profits = 2,000 + 26,100 + 31,200 = Rs. 59,300

Step 2: Calculate the average profit
Average profit = Total profits / Number of years
Average profit = 59,300 / 3 = Rs. 19,766.67

Step 3: Adjust the profits for the defective stock
Adjusted profit for 1999-2000 = 26,100 - 2,200 = Rs. 23,900
Adjusted profit for 2000-01 = 31,200 - 6,200 = Rs. 25,000

Step 4: Calculate the total adjusted profits
Total adjusted profits = 2,000 + 23,900 + 25,000 = Rs. 50,900

Step 5: Calculate the value of goodwill
Goodwill = Average profit x Number of years - Total adjusted profits
Goodwill = 19,766.67 x 3 - 50,900
Goodwill = Rs. 17,700

Therefore, the value of goodwill on the average profit method is Rs. 17,700 (option B).

Will be credited or debited?

Since A and B share profits and losses equally, they have a 1:1 ratio in their capital contributions. Therefore, the total capital of the firm is Rs. 1,20,000 (Rs. 90,000 + Rs. 30,000).

If the goodwill of the firm is valued at Rs. 84,000, it means that the total value of the firm is Rs. 2,04,000 (Rs. 1,20,000 + Rs. 84,000).

To raise the goodwill in the books, each partner's capital account will be credited or debited based on their share in the firm. Since they have an equal share, each partner's capital account will be credited or debited by half of the goodwill value.

Therefore, each partner's capital account will be credited by Rs. 42,000 (half of Rs. 84,000). The new capital balance of A and B will be Rs. 1,32,000 each (Rs. 90,000 + Rs. 42,000 and Rs. 30,000 + Rs. 42,000 respectively).

To calculate the goodwill on the basis of two years purchase of super profits, we need to first calculate the super profits of the firm. Super profits are the excess profits earned by a firm over its normal profits.

Let's calculate the super profits:

Step 1: Calculate the normal profit
Normal profit = Rate of return on capital employed * Capital employed
Normal profit = 12.5% * Rs. 4,00,000
Normal profit = Rs. 50,000

Step 2: Calculate the super profits
Super profits = Average profit - Normal profit
Super profits = Rs. 60,000 - Rs. 50,000
Super profits = Rs. 10,000

Now, we can calculate the goodwill:

Goodwill = 2 * Super profits
Goodwill = 2 * Rs. 10,000
Goodwill = Rs. 20,000

Therefore, the goodwill on the basis of two years purchase of super profits is Rs. 20,000.

Hence, the correct answer is option A) Rs. 20,000.

Super profit= (17000+20000+23000)÷3-80000×15÷100=8000, goodwill =8000×2=16000.

Explanation:

When a new partner joins a partnership, the value of the firm may increase due to the new partner's skills, experience, and resources. This increase in value is known as goodwill. The incoming partner may bring in cash as their contribution towards goodwill.

However, the treatment of this goodwill brought in by the incoming partner depends on the agreement made between the partners. In the absence of any agreement, the goodwill is taken away by the old partners in their sacrificing ratio.

Sacrificing Ratio:

The sacrificing ratio is the ratio in which the old partners agree to reduce their share of profits to accommodate the incoming partner. It is calculated by subtracting the new profit sharing ratio from the old profit sharing ratio.

For example, if the old partners had a profit sharing ratio of 2:1 and the new partner is admitted with a profit sharing ratio of 1:1, the sacrificing ratio would be 2-1:1-1 or 1:0. This means that the old partners will sacrifice one-third of their share of profits to accommodate the new partner.

Goodwill Treatment:

Once the sacrificing ratio is determined, the goodwill brought in by the incoming partner is taken away by the old partners in their sacrificing ratio. This means that the old partners will share the amount of goodwill brought in by the incoming partner in their sacrificing ratio.

For example, if the incoming partner brings in Rs. 1,00,000 as goodwill and the sacrificing ratio is 1:0, the old partners will share the goodwill in the ratio of 1:1. This means that each of the old partners will receive Rs. 50,000 from the goodwill brought in by the incoming partner.

Treatment for workmen compensation fund in the given scenario:

Distribution to the partners in old profit sharing ratio.

Explanation:

When there is no information available regarding the treatment of workmen compensation fund, it is assumed that the fund is a liability and needs to be settled. As per the partnership agreement, the profits and losses are shared in the ratio of 5:3:2. Therefore, the workmen compensation fund liability should also be distributed among the partners in the same ratio. Hence, the correct option is A, i.e., distributed to the partners in old profit sharing ratio.

This means that the workmen compensation fund liability will be distributed among the partners in the ratio of 5:3:2 as per the old profit sharing ratio and will be adjusted against their respective capital accounts. The remaining balance, if any, will be transferred to the current account of the partners.

It is important to note that the distribution of the workmen compensation fund liability should be done before the distribution of profits in the new ratio of 2:3:5. This is because the workmen compensation fund liability is a prior charge on profits and needs to be settled before any profits are distributed among the partners.

In conclusion, the workmen compensation fund liability will be distributed to the partners in the old profit sharing ratio and will be adjusted against their respective capital accounts.

Of "definition" is a statement or description that explains the meaning of a word or phrase. It is an explanation of the essential nature or characteristics of something. A definition can be found in a dictionary or created by an individual to clarify the meaning of a term.

Explanation:

To calculate the amount of goodwill as per the capitalization method, we need to use the formula:

Goodwill = (Super Profits / Normal Rate of Return) * 100

Let's break down the given information step by step:

1. Capital Employed: Rs. 1,50,000
- This refers to the total amount of capital invested in the business.

2. Profits: Rs. 50,000
- This is the profit earned by the business.

3. Normal Rate of Profit: 20%
- This is the expected rate of return on the capital employed. In this case, it is 20%.

4. Super Profits:
- Super Profits refer to the excess profit earned by the business over the normal rate of profit.
- Super Profits = Actual Profits - (Capital Employed * Normal Rate of Profit)
- Super Profits = Rs. 50,000 - (Rs. 1,50,000 * 20%)
- Super Profits = Rs. 50,000 - Rs. 30,000
- Super Profits = Rs. 20,000

5. Goodwill:
- Goodwill = (Super Profits / Normal Rate of Return) * 100
- Goodwill = (Rs. 20,000 / 20%) * 100
- Goodwill = Rs. 1,00,000

Therefore, the amount of goodwill as per the capitalization method is Rs. 1,00,000. Hence, option 'D' is the correct answer.

5000×2(half)=10000×4(equal four partners)=40000

Average profit=
(75000+90000+80000+100000+80000)÷5=105000.
Goodwill = 105000×3=315000.

Calculation of Goodwill:

1. Average profit for the last 6 years:

The average profit for the last 6 years can be calculated as follows:

Total profit for the last 6 years = (30,000 + 20,000 + 20,000 - 5,000 - 3,000 - 2,000) = 60,000

Average profit for the last 6 years = Total profit for the last 6 years/6 = 60,000/6 = Rs. 10,000

2. Goodwill:

Goodwill is to be calculated at 1.5 years of purchase of average profit of last 6 years.

Goodwill = 1.5 x Average profit for the last 6 years = 1.5 x Rs. 10,000 = Rs. 15,000

Therefore, the correct answer is option B, which is Rs. 15,000.

Calculation of Goodwill for Two Years of Purchase:

Step 1: Calculate the Average Profit for the last three years
Average Profit = (6000 + 13000 + 8000) / 3
Average Profit = 9000

Step 2: Calculate the Super Profit for the two years of purchase
Super Profit = Average Profit - Normal Profit
Normal Profit = Profit of the year of purchase
Super Profit = 9000 - 8000
Super Profit = 1000

Step 3: Calculate Goodwill using the Super Profit Method
Goodwill = Super Profit x Number of Years of Purchase
Goodwill = 1000 x 2
Goodwill = 2000

Therefore, the Goodwill for two years of purchase is Rs. 18,000.

Locational Factor: If the firm is centrally located or located in a very prominent place, it can attract, more customers resulting in an increase in turnover. Therefore, locational factor should always be considered while ascertaining the value of goodwill.

's Capital Account(s)

Given information:
A, B, and C are equal partners.
D is admitted to the firm for one-fourth share.
D brings Rs. 20,000 capital and Rs. 5,000 being half of the premium for goodwill.

To find:
The value of goodwill of the firm.

Solution:
Let the total value of the firm be 'x'.
As per the given information, initially the capital of A, B, and C is equal.
So, the capital of each partner is (1/3)x.
After D is admitted to the firm, the capital of each partner becomes (1/4)x.
So, the total capital of the firm after D's admission is (4/3)x.
Out of this, D brings Rs. 20,000 as capital.
So, the total capital of the firm before D's admission was (4/3)x - Rs. 20,000.
Now, D also brings Rs. 5,000 being half of the premium for goodwill.
So, the total premium for goodwill is Rs. 10,000.
Let the value of goodwill be 'y'.
So, (1/3)x + y = (4/3)x - Rs. 20,000 + Rs. 5,000
=> y = (4/3)x - (1/3)x + Rs. 15,000
=> y = x/3 + Rs. 15,000

Given that D is admitted for one-fourth share, which means the value of his share is (1/4)(4/3)x = (1/3)x.
So, (1/3)x = Rs. 20,000 + Rs. 2,500 (half of goodwill premium paid by D)
=> x = Rs. 90,000
Substituting this value in the equation for goodwill, we get:
y = Rs. 30,000 + Rs. 15,000
=> y = Rs. 45,000

Therefore, the value of goodwill of the firm is Rs. 45,000, which is option (B).

B)X
c)Z
d)Profit and Loss Account

Answer: b) X

Explanation:

Goodwill is always credited to the old partners in their old profit sharing ratio. In this case, X and Y are old partners and their profit sharing ratio is 3:1. Therefore, the goodwill will be credited to X's capital account in the ratio of 3:1.

The calculation of the amount to be credited to X's capital account is as follows:

Total amount of goodwill = Rs. 4,000
Goodwill to be credited to X = (3/4) x Rs. 4,000 = Rs. 3,000
Goodwill to be credited to Y = (1/4) x Rs. 4,000 = Rs. 1,000

Therefore, the answer is option b) X.

Goodwill

Goodwill refers to the intangible asset that represents the reputation, customer base, brand value, and other non-physical attributes of a business. It is the extra amount over and above the saleable values of the identifiable assets that could be fetched by selling an existing firm as a going concern. Goodwill represents the value of the business as a whole, including its established relationships, customer loyalty, and market position.

Explanation:

When a business is sold as a going concern, the buyer pays a price that reflects not only the value of the tangible assets owned by the business but also the intangible value associated with the business. This intangible value is known as goodwill.

Goodwill arises when the buyer is willing to pay more for the business than the net value of its identifiable assets. It represents the reputation, customer base, brand value, and other non-physical attributes that contribute to the business's earning capacity.

The factors that contribute to the creation of goodwill include:
1. Reputation: A good reputation in the market can attract more customers and lead to increased sales and profitability.
2. Customer Base: A loyal customer base that generates recurring revenue is considered an asset.
3. Brand Value: A strong brand name can command premium pricing and customer loyalty.
4. Location: A prime location can contribute to the success and profitability of a business.
5. Intellectual Property: Ownership of patents, copyrights, or trademarks can enhance the value of a business.

When a business is sold, the price paid by the buyer is typically higher than the net value of the identifiable assets. The difference between the sale price and the net value of the assets is recorded as goodwill on the buyer's balance sheet. Goodwill is considered an intangible asset and is subject to periodic impairment testing to ensure its value is not overstated.

Goodwill has a significant impact on a company's financial statements. It is amortized over its useful life or tested for impairment annually. Goodwill is not considered a physical asset but represents the intangible value that can contribute to a business's profitability and success.

Super profit is a term used in accounting and finance to describe the excess profit earned by a company over and above the normal profit. It is also known as abnormal profit or economic profit.

Calculating Super Profit

There are different methods of calculating super profit, but the most commonly used one is:

Super profit = Average profit - Normal profit

Where:

- Average profit is the profit earned by a company over a period of time, typically three to five years.
- Normal profit is the minimum profit required to cover the cost of capital, including the cost of debt and equity.

The concept of normal profit is important because it represents the opportunity cost of using the company's resources. If the company earns less than the normal profit, it is better off investing its capital elsewhere. If it earns more than the normal profit, it is generating a return on investment that exceeds the cost of capital.

Using the super profit formula, we can determine how much of the company's profit is due to its ability to generate returns above the cost of capital, and how much is due to other factors such as luck, timing, or market conditions.

Significance of Super Profit

Super profit is an important metric for investors and analysts because it reflects the company's competitive advantage and its ability to generate sustainable profits over the long term. A company that consistently earns super profits is more likely to have a moat or a competitive advantage that protects its market share and pricing power.

Super profit is also used to estimate the value of a company in a discounted cash flow (DCF) analysis. By estimating the company's future super profits, analysts can calculate its intrinsic value and compare it to the market price.

Conclusion

Super profit is a useful concept for understanding a company's profitability and competitive advantage. By calculating the excess profit earned over and above the normal profit, investors and analysts can evaluate the company's ability to generate sustainable returns on investment.

Reasons for using weighted average method for calculating goodwill:

Profits are uneven:
When profits are uneven, using a weighted average method helps in smoothing out fluctuations in earnings over multiple periods. This method gives more weight to recent profits, reflecting the current performance of the business more accurately.

Profits have increasing trend:
If profits have been increasing over time, using a weighted average method ensures that the goodwill calculation reflects the growth trend. By giving more weight to recent higher profits, the calculation will align with the improving financial performance of the business.

Profits have decreasing trend:
Similarly, if profits have been on a decreasing trend, using a weighted average method will take into account the declining earnings by assigning more weight to the lower recent profits. This helps in capturing the downward trajectory in the calculation of goodwill.

Conclusion:
In conclusion, the weighted average method of calculating goodwill is suitable when profits are uneven or when there is a trend of increasing or decreasing profits. This approach provides a more accurate representation of the business's current financial performance and helps in making informed decisions regarding goodwill valuation.

The total capital of B and D is Rs. 1,20,000 (90,000 + 30,000).
The profit sharing ratio is 3:1, which means B gets 3/4th and D gets 1/4th of the profit.
Let the new profit sharing ratio be 5x and 3x.
We can set up the following equation:
3/4 * profit = 5x/8 * profit + 3x/8 * profit + goodwill
Where profit is the total profit earned after 01.04.2006.
Simplifying the equation, we get:
3/4 * profit = (5x+3x)/8 * profit + 84,000
3/4 * profit = 8x/8 * profit + 84,000
3/4 * profit - 8x/8 * profit = 84,000
-5/8 * profit = 84,000
Profit = -1,34,400
This means there was a loss of Rs. 1,34,400 after 01.04.2006.
Now, we can calculate the new capitals of B and D using the new profit sharing ratio:
B's capital = (5/8) * (90,000) - 84,000 = 9,375
D's capital = (3/8) * (30,000) - 84,000 = -33,375
Since D's capital is negative, we can assume that B will absorb the loss. Therefore, B's new capital will be:
90,000 + 9,375 - 1,34,400 = -35,025
D's new capital will be 30,000 - 33,375 = -3,375
Thus, the new capital of B is Rs. -35,025 and the new capital of D is Rs. -3,375.

Average of profits, assuming that the normal rate of return on investment is 10%.

First, we need to calculate the total profits for the past 5 years:
Total profits = 0 + 0 + 75,000 + 60,000 = Rs. 1,35,000

Next, we need to calculate the average annual profit:
Average annual profit = Total profits / 5 = Rs. 27,000

We then need to calculate the capital required to generate this average annual profit:
Capital required = Average annual profit / Normal rate of return = Rs. 2,70,000

Assuming that the partners share the profits and losses equally, the share of each partner's capital in the partnership will be:
Partner's capital share = Capital required / 2 = Rs. 1,35,000

The value of goodwill will then be the excess of the total capital employed over the sum of the partners' capital shares:
Goodwill = Total capital employed - (Partner A's capital share + Partner B's capital share)
Assuming there are two partners in the firm, this will be:
Goodwill = Total capital employed - (Rs. 1,35,000 + Rs. 1,35,000) = Total capital employed - Rs. 2,70,000

We do not have information about the total capital employed, so we cannot calculate the value of goodwill.

Explanation:
Background:
- X, Y, and Z are partners sharing profits and losses in the ratio 5:3:2.
- They have decided to share future profits in the ratio 2:3:5.
Workmen Compensation Fund:
- Workmen Compensation Fund is a provision made by a business for the welfare and benefits of its employees in case of any work-related injury or accident.
- It is usually shown as a liability in the balance sheet.
Treatment for Workmen Compensation Fund:
- In the absence of any specific information, the treatment for the Workmen Compensation Fund appearing in the balance sheet on the date will be as follows:
1. Distributed to the partners in old profit sharing ratio:
- The Workmen Compensation Fund can be distributed among the partners in the old profit sharing ratio of 5:3:2.
- This means that the amount will be divided among the partners based on their respective profit sharing ratios before the change in profit sharing ratio.
2. Reasoning behind this treatment:
- Since no information is available about the treatment of the Workmen Compensation Fund in the new profit sharing ratio, it is logical to distribute it in the old profit sharing ratio.
- This ensures that the partners receive their respective shares based on their previous profit sharing ratios.
Therefore, the correct answer is A: Distributed to the partners in old profit sharing ratio.

Super profit=average profit -normal profit A.p=15000+20000+25000÷3=20000. N.p=100000×15%=15000 s.p=20000-15000 =5000×2years of purchase=10000

False Statement in Partnership:

Partnership is a type of business organization in which two or more persons come together to carry on a business for profit. The partnership is governed by the Indian Partnership Act, 1932. The partnership deed is a legal document that governs the rights and obligations of partners and lays down the terms and conditions of the partnership. In this question, we are asked to identify the false statement regarding the partnership.

False Statement: In the absence of the partnership agreement, partners share profits in the capital ratio.

Explanation:

• Partnership Deed: It is a legal document that contains all the terms and conditions of the partnership, such as the name of the firm, the nature of the business, the capital contribution of each partner, the rights and duties of partners, profit-sharing ratio, etc. It is prepared and signed by all the partners.

• Jointly and Severally Unlimited Liability: In a partnership, the liability of partners is jointly and severally unlimited, which means that each partner is liable for the debts and obligations of the firm to the full extent of his personal assets.

• Profit and Loss Appropriation Account: It is prepared to show the distribution of profits among partners. It contains all the items of income and expenditure of the firm, such as sales, purchases, expenses, etc. It also shows the interest on capital, salary, commission, and share of profit of each partner.

• Profit-Sharing Ratio: It is the ratio in which partners share the profits and losses of the firm. The profit-sharing ratio may be equal or unequal, depending upon the terms of the partnership deed.

In the absence of the partnership agreement, partners share profits and losses equally, and the capital ratio is not considered. However, this statement is false because in the absence of the partnership agreement, the partnership is governed by the Indian Partnership Act, 1932, which provides that the profits and losses of the firm shall be shared equally among partners, irrespective of their capital contribution. Therefore, option C is the false statement.

Calculation of Average Super Profit:
- Super Profit is the excess of actual profits over normal profits.
- Normal profits are estimated on the basis of a reasonable return on capital employed.
- Here, the rate of interest expected from capital invested is 12%.
- Hence, normal profit = 12% of average capital employed = 12% of Rs. 2,00,000 = Rs. 24,000.
- Super profits for the last four years are:
- 2001-02: Rs. (10,000 - 24,000) = Rs. -14,000 (loss)
- 2002-03: Rs. (2,500 - 24,000) = Rs. -21,500 (loss)
- 2003-04: Rs. (98,000 - 24,000) = Rs. 74,000 (profit)
- 2004-05: Rs. (76,000 - 24,000) = Rs. 52,000 (profit)
- Total Super Profit for 4 years = Rs. 1,00,500
- Average Super Profit for 4 years = Rs. 25,125 (1,00,500/4)

Calculation of Goodwill:
- Goodwill = Average Super Profit x Number of Years Purchase
- Number of Years Purchase = 2
- Hence, Goodwill = Rs. 25,125 x 2 = Rs. 50,250
- But, this is the value of goodwill for 4 years.
- To get the value of goodwill on the basis of two years purchase of super profits based on the average of four years, we need to calculate the average of the last two years.
- Average Super Profit for the last two years = (74,000 + 52,000)/2 = Rs. 63,000
- Goodwill = Average Super Profit x Number of Years Purchase = Rs. 63,000 x 2 = Rs. 1,26,000
- Partners' remuneration of Rs. 1,000 per month is not relevant for calculating goodwill.

Hence, the value of goodwill on the basis of two years purchase of super profits based on the average of four years is Rs. 8,750 (Option B).