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Page 1 Treatment of Goodwill in Partnership Accounts CPT Section A Fundamentals of Accountancy Chapter 8 Unit 2 Part 1 CA. Ajay Lunawat Page 2 Treatment of Goodwill in Partnership Accounts CPT Section A Fundamentals of Accountancy Chapter 8 Unit 2 Part 1 CA. Ajay Lunawat Question 1 The profits of last five years are Rs. 85,000; Rs. 90,000; Rs. 70,000; Rs. 1,00,000 and Rs. 80,000. Find the value of goodwill, if it is calculated on average profits of last five years on the basis of 3 years of purchase. (a) Rs. 85,000. (b) Rs. 2,55,000. (c) Rs. 2,75,000. (d) Rs. 2,85,000. Ans (b) Page 3 Treatment of Goodwill in Partnership Accounts CPT Section A Fundamentals of Accountancy Chapter 8 Unit 2 Part 1 CA. Ajay Lunawat Question 1 The profits of last five years are Rs. 85,000; Rs. 90,000; Rs. 70,000; Rs. 1,00,000 and Rs. 80,000. Find the value of goodwill, if it is calculated on average profits of last five years on the basis of 3 years of purchase. (a) Rs. 85,000. (b) Rs. 2,55,000. (c) Rs. 2,75,000. (d) Rs. 2,85,000. Ans (b) Question 2 Find the goodwill of the firm using capitalization method from the following information: • Total Capital Employed in the firm Rs. 8,00,000 • Reasonable Rate of Return 15% • Profits for the year Rs. 12,00,000 (a) Rs. 82,00,000. (b) Rs. 12,00,000. (c) Rs. 72,00,000. (d) Rs. 42,00,000 Ans (c) Page 4 Treatment of Goodwill in Partnership Accounts CPT Section A Fundamentals of Accountancy Chapter 8 Unit 2 Part 1 CA. Ajay Lunawat Question 1 The profits of last five years are Rs. 85,000; Rs. 90,000; Rs. 70,000; Rs. 1,00,000 and Rs. 80,000. Find the value of goodwill, if it is calculated on average profits of last five years on the basis of 3 years of purchase. (a) Rs. 85,000. (b) Rs. 2,55,000. (c) Rs. 2,75,000. (d) Rs. 2,85,000. Ans (b) Question 2 Find the goodwill of the firm using capitalization method from the following information: • Total Capital Employed in the firm Rs. 8,00,000 • Reasonable Rate of Return 15% • Profits for the year Rs. 12,00,000 (a) Rs. 82,00,000. (b) Rs. 12,00,000. (c) Rs. 72,00,000. (d) Rs. 42,00,000 Ans (c) Question 3 • Under average profit basis goodwill is calculated by: (a) No. of years purchased multiplied with average profits. (b) No. of years purchased multiplied with super profits. (c) Summation of the discounted value of expected future benefits. (d) Super profit divided with expected rate of return. Ans (a) Page 5 Treatment of Goodwill in Partnership Accounts CPT Section A Fundamentals of Accountancy Chapter 8 Unit 2 Part 1 CA. Ajay Lunawat Question 1 The profits of last five years are Rs. 85,000; Rs. 90,000; Rs. 70,000; Rs. 1,00,000 and Rs. 80,000. Find the value of goodwill, if it is calculated on average profits of last five years on the basis of 3 years of purchase. (a) Rs. 85,000. (b) Rs. 2,55,000. (c) Rs. 2,75,000. (d) Rs. 2,85,000. Ans (b) Question 2 Find the goodwill of the firm using capitalization method from the following information: • Total Capital Employed in the firm Rs. 8,00,000 • Reasonable Rate of Return 15% • Profits for the year Rs. 12,00,000 (a) Rs. 82,00,000. (b) Rs. 12,00,000. (c) Rs. 72,00,000. (d) Rs. 42,00,000 Ans (c) Question 3 • Under average profit basis goodwill is calculated by: (a) No. of years purchased multiplied with average profits. (b) No. of years purchased multiplied with super profits. (c) Summation of the discounted value of expected future benefits. (d) Super profit divided with expected rate of return. Ans (a) Question 4 • Under super profit basis goodwill is calculated by: (a) No. of years purchased multiplied with average profits. (b) No. of years purchased multiplied with super profits. (c) Summation of the discounted value of expected future benefits. (d) Super profit divided with expected rate of return. Ans (b)Read More
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FAQs on MCQ - Treatment of goodwill in Partnership Accounts - Principles and Practice of Accounting - CA Foundation
| 1. What is goodwill in partnership accounts? |  |
Ans. Goodwill in partnership accounts refers to the intangible asset that represents the reputation, customer loyalty, and brand value of the partnership. It is the excess of the purchase consideration over the net assets of the partnership at the time of admission or retirement of a partner.
| 2. How is goodwill treated in partnership accounts? | |
Ans. Goodwill is usually recorded in the books of accounts as an asset and is shown in the balance sheet. It is divided among the partners' capital accounts in their profit sharing ratio. If the partnership agreement specifies a different treatment, it should be followed accordingly.
| 3. Can goodwill be revalued in partnership accounts? | |
Ans. Yes, goodwill can be revalued in partnership accounts if there is a change in the partnership agreement or a significant event that affects the value of goodwill. The revaluation should be done with the mutual consent of all partners and the revised value should be recorded in the books of accounts.
| 4. How is the treatment of goodwill different during admission and retirement of a partner? | |
Ans. During the admission of a partner, goodwill is valued and the incoming partner pays a share of the value to the existing partners. This payment is credited to the existing partners' capital accounts in their profit sharing ratio. In the case of retirement, the retiring partner is entitled to a share of the goodwill value, which is debited to the remaining partners' capital accounts in their profit sharing ratio.
| 5. Can goodwill be written off in partnership accounts? | |
Ans. Yes, goodwill can be written off in partnership accounts if it becomes impaired or loses its value due to certain circumstances. For example, if the partnership faces a significant loss or there is a change in the market conditions that negatively impact the goodwill, it can be written off by debiting the partners' capital accounts in their profit sharing ratio.
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