Unit 2: Treatment of Goodwill in Partnership Accounts (Question with Answer) CA Foundation Notes | EduRev
Principles and Practice of Accounting
Created by: Sushil KumarCA Foundation : Unit 2: Treatment of Goodwill in Partnership Accounts (Question with Answer) CA Foundation Notes | EduRev
Ques 1. Goodwill brought in by incoming partner in cash for joining in a partnership firm is taken away by the old partners in their………ratio.
(a) Capital. (b) New Profit Sharing. (c) Sacrificing.
Ans: (c)
Ques 2. A & B are partners sharing profits and losses in the ratio 5:3. On admission, C brings Rs 70,000 cash and Rs 48,000 against goodwill. New profit sharing ratio between A, B and C are 7:5:4. Find the sacrificing ratio of A:B.
(a) 3:1.
(b) 4:7.
(c) 5:4.
Ans: (a)
Ques 3. Following are the factors affecting goodwill except:
(a) Nature of business.
(b) E ciency of management.
(c) Location of the customers.
Ans: (c)
Ques 4. Weighted average method of calculating goodwill should be followed when:
(a) Profits has increasing trend.
(b) Profits has decreasing trend.
(c) Either ‘a’ or ‘b’.
Ans: (c)
Ques 5. In the absence of any provision in the partnership agreement, profits and losses are shared
(a) In the ratio of capitals.
(b) Equally.
(c) In the ratio of loans given by them to the partnership firm.
Ans: (b)
Practical questions
Ques 1. Wise, Clever and Dull were trading in partnership sharing profits and losses 4:3:3 respectively. The accounts of the firm are made upto 31st December every year. The partnership provided, interalia, that: On the death of a partner the goodwill was to be valued at three years’ purchase of average profits of the three years upto the date of the death after deducting interest @8 percent on capital employed and a fair remuneration of each partner. The profits are assumed to be earned evenly throughout the year. On 30th June, 2016, Wise died and it was agreed on his death to adjust goodwill in the capital accounts without showing any amount of goodwill in the Balance Sheet. It was agreed for the purpose of valuation of goodwill that the fair remuneration for work done by each partner would be Rs 15,000 per annum and that the capital employed would be Rs 1,56,000. Clever and Dull were to continue the partnership, sharing profits and losses equally after the death of Wise.
The following were the amounts of profits of earlier years before charging interest on capital employed.
You are required to compute the value of goodwill and show the adjustment there of in the books of the firm.
Ans: Computation of the value of goodwill:
Adjustment entry for Goodwill
Journal Entry
(Adjusting entry passed for share of goodwill of Wise through remaining partners’ capital accounts in gaining ratio)
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