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A, B and C are partners sharing profits equally. A retires and goodwill appearing in the books at Rs. 3,000 is valued at Rs. 6,000. A will get credit of :
- a)Rs. 2,000
- b)Rs. 3,000
- c)Rs. 500
- d)Rs. 1,000
Correct answer is option 'D'. Can you explain this answer?
Verified Answer
A, B and C are partners sharing profits equally. A retires and goodwil...
A, B, and C are partners sharing profits equally. A retires, and goodwill appearing in the books at Rs. 3,000 is valued at Rs. 6,000. How much credit will A get?
- Total Goodwill: The goodwill is valued at Rs. 6,000.
- Existing Goodwill in Books: Rs. 3,000
- Excess Goodwill to be adjusted:
Rs. 6,000 - Rs. 3,000 = Rs. 3,000 - The partners share profits equally. Therefore, the share of A in goodwill is:
A's share = 1⁄3 of Rs. 6,000 = Rs. 2,000 - A will receive credit for Rs. 2,000 as their share of the goodwill.
The correct option is (a) Rs. 2,000.
Most Upvoted Answer
A, B and C are partners sharing profits equally. A retires and goodwil...
Valuation of Goodwill on Retirement of a Partner
- Goodwill is an intangible asset that represents the value of a firm's brand name, reputation, customer base, and other such factors that contribute to its earning capacity.
- When a partner retires from a partnership firm, the goodwill of the firm needs to be revalued to account for the change in the partnership.
- The amount by which the revalued goodwill exceeds its book value is known as the 'Gaining Ratio'.
- The gaining ratio represents the new profit sharing ratio among the remaining partners.
- The retiring partner is entitled to a share of the excess goodwill in proportion to their profit-sharing ratio in the old firm.
Calculation of Credit to Retiring Partner
- In this case, the partners A, B, and C share profits equally, i.e. in the ratio of 1:1:1.
- A retires, and the goodwill appearing in the books at Rs. 3,000 is valued at Rs. 6,000.
- The gaining ratio is calculated as follows:
Gaining Ratio = New Profit Sharing Ratio - Old Profit Sharing Ratio
= (B:C) - (A:B:C)
= (1:1)/(1:1:1)
= 1:1 - 1:1:1
= 0:1:1
- The retiring partner A is entitled to a share of the excess goodwill in proportion to their profit-sharing ratio in the old firm, i.e. 1/3.
- Therefore, A's credit will be calculated as follows:
Credit to Retiring Partner = Gaining Ratio x Excess Goodwill x Retiring Partner's Profit-Sharing Ratio
= 0:1:1 x (6,000 - 3,000) x 1/3
= 0 x 3,000 x 1/3
= 0
- Hence, the credit to retiring partner A is Rs. 0, which means that they are not entitled to any share of the excess goodwill.
- Goodwill is an intangible asset that represents the value of a firm's brand name, reputation, customer base, and other such factors that contribute to its earning capacity.
- When a partner retires from a partnership firm, the goodwill of the firm needs to be revalued to account for the change in the partnership.
- The amount by which the revalued goodwill exceeds its book value is known as the 'Gaining Ratio'.
- The gaining ratio represents the new profit sharing ratio among the remaining partners.
- The retiring partner is entitled to a share of the excess goodwill in proportion to their profit-sharing ratio in the old firm.
Calculation of Credit to Retiring Partner
- In this case, the partners A, B, and C share profits equally, i.e. in the ratio of 1:1:1.
- A retires, and the goodwill appearing in the books at Rs. 3,000 is valued at Rs. 6,000.
- The gaining ratio is calculated as follows:
Gaining Ratio = New Profit Sharing Ratio - Old Profit Sharing Ratio
= (B:C) - (A:B:C)
= (1:1)/(1:1:1)
= 1:1 - 1:1:1
= 0:1:1
- The retiring partner A is entitled to a share of the excess goodwill in proportion to their profit-sharing ratio in the old firm, i.e. 1/3.
- Therefore, A's credit will be calculated as follows:
Credit to Retiring Partner = Gaining Ratio x Excess Goodwill x Retiring Partner's Profit-Sharing Ratio
= 0:1:1 x (6,000 - 3,000) x 1/3
= 0 x 3,000 x 1/3
= 0
- Hence, the credit to retiring partner A is Rs. 0, which means that they are not entitled to any share of the excess goodwill.
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A, B and C are partners sharing profits equally. A retires and goodwill appearing in the books at Rs. 3,000 is valued at Rs. 6,000. A will get credit of :a)Rs. 2,000b)Rs. 3,000c)Rs. 500d)Rs. 1,000Correct answer is option 'D'. Can you explain this answer?
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A, B and C are partners sharing profits equally. A retires and goodwill appearing in the books at Rs. 3,000 is valued at Rs. 6,000. A will get credit of :a)Rs. 2,000b)Rs. 3,000c)Rs. 500d)Rs. 1,000Correct answer is option 'D'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A, B and C are partners sharing profits equally. A retires and goodwill appearing in the books at Rs. 3,000 is valued at Rs. 6,000. A will get credit of :a)Rs. 2,000b)Rs. 3,000c)Rs. 500d)Rs. 1,000Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A, B and C are partners sharing profits equally. A retires and goodwill appearing in the books at Rs. 3,000 is valued at Rs. 6,000. A will get credit of :a)Rs. 2,000b)Rs. 3,000c)Rs. 500d)Rs. 1,000Correct answer is option 'D'. Can you explain this answer?.
A, B and C are partners sharing profits equally. A retires and goodwill appearing in the books at Rs. 3,000 is valued at Rs. 6,000. A will get credit of :a)Rs. 2,000b)Rs. 3,000c)Rs. 500d)Rs. 1,000Correct answer is option 'D'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A, B and C are partners sharing profits equally. A retires and goodwill appearing in the books at Rs. 3,000 is valued at Rs. 6,000. A will get credit of :a)Rs. 2,000b)Rs. 3,000c)Rs. 500d)Rs. 1,000Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A, B and C are partners sharing profits equally. A retires and goodwill appearing in the books at Rs. 3,000 is valued at Rs. 6,000. A will get credit of :a)Rs. 2,000b)Rs. 3,000c)Rs. 500d)Rs. 1,000Correct answer is option 'D'. Can you explain this answer?.
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A, B and C are partners sharing profits equally. A retires and goodwill appearing in the books at Rs. 3,000 is valued at Rs. 6,000. A will get credit of :a)Rs. 2,000b)Rs. 3,000c)Rs. 500d)Rs. 1,000Correct answer is option 'D'. Can you explain this answer?, a detailed solution for A, B and C are partners sharing profits equally. A retires and goodwill appearing in the books at Rs. 3,000 is valued at Rs. 6,000. A will get credit of :a)Rs. 2,000b)Rs. 3,000c)Rs. 500d)Rs. 1,000Correct answer is option 'D'. Can you explain this answer? has been provided alongside types of A, B and C are partners sharing profits equally. A retires and goodwill appearing in the books at Rs. 3,000 is valued at Rs. 6,000. A will get credit of :a)Rs. 2,000b)Rs. 3,000c)Rs. 500d)Rs. 1,000Correct answer is option 'D'. Can you explain this answer? theory, EduRev gives you an
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