D. K. Goel solutions for Accountancy Part A Volume 1 and 2 [English] Class 12 chapter 2 - Change in Profit Sharing Ratio among the Existing Partners [Latest edition]

On the basis of the above information, answer the following:

Normal Profit of the firm is:

On the basis of the above information, answer the following:

Super Profit will be:

On the basis of the above information, answer the following:

Average Profit will be:

On the basis of the above information, answer the following:

For adjustment of goodwill:

On the basis of above information, answer the following:

Average maintainable profit will be ______.

On the basis of above information, answer the following:

Normal profit of the firm is ______.

On the basis of above information, answer the following:

Value of goodwill of the firm will be ______.

On the basis of above information, answer the following:

For adjustment of goodwill:

Based on the above information, choose the correct option:

In respect of goodwill ______.

Based on the above information, choose the correct option:

In respect of Advertisement Suspense Account ______.

Based on the above information, choose the correct option:

In respect of Workmen Compensation ______.

Based on the above information, choose the correct option:

If Investments are valued at ₹ 4,00,000, then in respect of investments ______.

Based on the above information, choose the correct option:

In respect of Profit & Loss (Dr.) Balance ______.

Based on the above information, choose the correct option:

Loss on Revaluation will be ______.

Based on the above information, choose the correct option:

In respect of goodwill ______.

Based on the above information, choose the correct option:

Balance of A's Capital Account will be ______.

State Whether the following Statement is True or False:

Change in profit sharing ratio of existing partners does not amount to reconstitution of the partnership firm.

State Whether the following Statement is True or False:

Old Ratio − Sacrificing Ratio = New Ratio

State Whether the following Statement is True or False:

Gaining Ratio = New Ratio − Old Ratio

State Whether the following Statement is True or False:

Any change in existing agreement of partnership results in reconstitution of a firm.

State Whether the following Statement is True or False:

Unrecorded assets are recorded in existing partners' capital accounts.

State Whether the following Statement is True or False:

At the time of change in profit sharing ratio among existing partners, an unrecorded liability is credited to Revaluation Account.

State Whether the following Statement is True or False:

Sacrificing Ratio = New Ratio − Old Ratio

State Whether the following Statement is True or False:

Goodwill is a fictitious asset.

State Whether the following Statement is True or False:

Revaluation account is a nominal account.

State Whether the following Statement is True or False:

General Reserve Account always shows credit balance.

State Whether the following Statement is True or False:

Recording of unrecorded assets on the reconstitution of partnership firm is a gain to the existing partners.

State Whether the following Statement is True or False:

At the time of change in profit sharing ratio, profit on Revaluation Account is credited to existing partners' capital accounts in old ratio.

State Whether the following Statement is True or False:

Average Profit − Normal Profit = Super Profit

State Whether the following Statement is True or False:

Capital Employed × Normal Rate of Return = Normal Profit

State Whether the following Statement is True or False:

Goodwill is a Current Asset.

State True or False with reasons:

Goodwill is not a fictitious asset.

State Whether the following Statement is True or False:

Goodwill is a saleable asset.

State Whether the following Statement is True or False:

Normal Profit − Actual Profit = Super Profit.

State Whether the following Statement is True or False:

Goodwill is a valuable asset.

State Whether the following Statement is True or False:

Losses are ignored while calculating the average profit.

State Whether the following Statement is True or False:

Goodwill exists only when a firm earns more profits than normal profits.

Goodwill is an ______ asset, but not a ______ asset.

Super profit is the excess of ______ over the normal profits.

Following two main steps are involved in valuing the goodwill under the ______ method:

1. Calculate super profit
2. Multiply super profit by number of years purchase

Under weighted average method it is considered better to give a ______ Weightage to the profit to the recent years.

The person who purchases a running business of the firm must pay in the form of ______ a sum which is equal to the profits he is likely to receive for the first few years.

Under ______ method the goodwill can be calculated by deducting the actual capital employed from the capitalized value of the average profits.

The Goodwill of firm ₹ 3,60,000 valued at three year's purchase of super profit. If capital employed is ₹ 4,00,000 and Normal rate of return is 10% per annum, the amount of average profit will be ______.

Revaluation Account is prepared at the time of ______.

Revaluation Account is a ______ account.

Revaluation Account shows ______ in the value of assets and liabilities.

In the case of downward revaluation of an asset, Revaluation Account is ______.

In the case of upward revaluation of a liability, Revaluation Account is ______.

In the Balance Sheet prepared after the new Partnership Deed, the assets and liabilities are shown at ______ if Revaluation Account is prepared.

In valuation of Goodwill, the Weighted Average Profit Method is preferred over average method when there is a ______ in profits.

Change in profit sharing ratio of existing partners amounts to ______ of partnership firm.

Revaluation of assets on the reconstitution of partnership firm becomes necessary because their present values may be different from their ______ values.

Tangible Trading Assets − Trading Liabilities = ______

Goodwill = Super Profit × `100/"..........."`.

Goodwill = Capitalised Value of Average Profits (−) ______.

Average Profit = `"..................."/"Number of Years"`.

Goodwill is an intangible and ______ asset of a business.

Goodwill is a ______ which arises due to connection and reputation of a business.

If average profits of a firm are ₹ 86,000, normal rate of return is 10% and goodwill at five times of super profits is ₹ 1,30,000, capital employed will be ______.

If average profits of a firm are ₹ 74,000, normal rate of return is 10%, goodwill is valued at ₹ 1,20,000, capital employed will be ______.

Match the following in case of Change in Profit Sharing Ratio:

Identify the factors affecting the value of goodwill:

Identify weight for the past years while calculating goodwill by weighted average profit:

Match the following items:

Match the following items:

Match the following items:

In case of change in profit sharing ratio among existing partners:

Match the following items:

Out of the following, in which situation(s) the reconstitution of a firm takes place:

Any change in the relationship of existing partners which results at an end of the existing agreement and enforces making of a new agreement is called:

Sacrificing Ratio:

Gaining Ratio:

A and B were partners in a firm sharing profit or loss equally. With effect from 1st April, 2023 they agreed to share profits in the ratio of 4 : 3. Due to change in profit sharing ratio, A's gain or sacrifice will be:

X, Y and Z were partners sharing profits in the ratio 2 : 3 : 4 with effect from 1st January, 2023 they agreed to share profits in the ratio 3 : 4 : 5. Each partner's gain or sacrifice due to change in the ratio will be:

A, B and C are equal partners in the firm. It is now agreed that they will share the future profits in the ratio 5 : 3 : 2. Sacrificing ratio and gaining ratio of different partners will be:

Which of the following is true in relation to goodwill?

The excess amount which the firm can get on selling its assets over and above the saleable value of its assets is called ______.

Which of the following is not true in relation to goodwill?

When goodwill is not purchased goodwill account can ______.

The goodwill of the firm is not affected by:

Which of the following statement(s) is/are not correct?

1. Goodwill is the present value of a firm's anticipated excess earnings.
2. Goodwill is a fictitious asset.
3. Goodwill is an intangible asset.
4. Goodwill is affected by the location of business.

Capital employed by a partnership firm is ₹ 5,00,000. Its average profit is ₹ 60,000. The normal rate of retum in similar type of business is 10%. What is the amount of super profits?

Weighted average method of calculating goodwill is used when ______.

The profits earned by a business over the last 5 years are as follows:

₹ 20,000; ₹ 30,000; ₹ 10,000; ₹ 50,000 and ₹ 2,000 (loss). Based on 2 years of purchases of the last 4 years’ average profits, the value of goodwill will be:

The normal commercial yield on capital invested in a business is 10% p.a. The net capital invested in the business is ₹ 5,00,000. Amount of goodwill. Based on 3 years purchase of super profits is ₹ 30,000. The average profits will be ______.

Tangible assets of the firm are ₹ 14,00,000 and outside liabilities are ₹ 4,00,000. Profit of the firm is ₹ 1,50,000 and normal rate of return is 10%. The amount of capital employed will be ______.

Under the capitalisation method, the formula for calculating the goodwill is ______.

Total assets of a firm including fictitious assets of ₹ 5,000 are ₹ 85,000. The net liabilities of the firm are ₹ 30,000. The normal rate of return is 10% and the average profits of the firm are ₹ 8,000. Calculate the goodwill as per capitalisation of super profits.

A business earned average profits of ₹ 60,000 during the last three years. The normal rate of return on similar business is 12%. The value of net assets of the business is ₹ 4,00,000. Its goodwill by capitalisation of Average Profits Method will be ______.

The average capital employed of a firm is ₹ 4,00,000 and the normal rate of return is 15%. The average profit of the firm is ₹ 80,000 per annum. If the remuneration of the partners is estimated to be ₹ 10,000 per annum, then on the basis of two years purchase of super-profit, the value of the goodwill will be ______.

A firm earns ₹ 1,10,000. The normal rate of return is 10%. The assets of the firm amounted to ₹ 11,00,000 and liabilities to ₹ 1,00,000. Value of goodwill by capitalisation of Average Actual Profits will be ______.

Amit and Sumit were partners in a firm with capitals of ₹ 3,00,000 and ₹ 2,00,000 respectively. The normal rate of return was 20% and the capitalised value of average profits was ₹ 8,50,000. The goodwill of the firm by capitalisation of average profits method will be ______.

Capital invested in a firm is ₹ 5,00,000. Average profits of the firm are ₹ 64,000 (after an abnormal loss of ₹ 4,000). Value of goodwill at four times the super profits is ₹ 72,000. What is the normal rate of return?

A, B and C were partners sharing profits and losses in the ratio of 7 : 3 : 2. From 1st January, 2023 they decided to share profits and losses in the ratio of 8 : 4 : 3. Goodwill is ₹ 1,20,000. In Adjustment entry for goodwill:

Avya, Divya and Kavya were equal partners. They decided to change the profit-sharing ratio to 4 : 3 : 2. For this purpose, the goodwill of the firm was valued at ₹ 90,000. The journal entry for the treatment of goodwill on change in profit sharing ratio will be:

Red, Blue and White were partners in a firm sharing profits in the ratio of 1 : 2 : 2. They decided to share future profits in the ratio of 7 : 5 : 3 with effect from 1st April, 2019. Their Balance Sheet as on that date showed a balance of ₹ 22,500 in Deferred Revenue Expenditure Account. The amount to be debited respectively to the capital accounts of Red, Blue and White for writing off Deferred Revenue Expenditure will be:

A, B and C are partner sharing profits in the ratio of 1 : 2 : 3. On 1-4-2023 they decided to share the profits equally. On the date there was a credit balance of ₹ 1,20,000 in their Profit and Loss Account and a balance of ₹ 1,80,000 in General Reserve Account. Instead of closing the General Reserve Account and Profit and Loss Account, it is decided to record an adjustment entry for the same. In the necessary adjustment entry to give effect to the above arrangement:

X, Y and Z are partners in a firm sharing profits in the ratio 4 : 3 : 2. Their Balance Sheet as at 31-3-2023 showed a debit balance of Profit & Loss A/c ₹ 1,80,000. From 1-4-2023 they will share profits equally. In the necessary journal entry to give effect to the above arrangement when X, Y and Z decided not to close the Profit & Loss Account:

Arun and Varun are partners sharing profits in the ratio of 4 : 3. Their Balance Sheet showed a balance of ₹ 56,000 in the General Reserve Account and a debit balance of ₹ 14,000 in Profit and Loss Account. They now decided to share the future Profits equally. Instead of closing the General Reserve Account and Profit and Loss Account, it is decided to pass an adjustment entry for the same. In adjustment entry:

X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 2 : 1. They decided to share future profits equally. The Profit and Loss Account showed a Credit balance of ₹ 60,000 and a General Reserve of ₹ 30,000. If these are not to be shown in balance sheet, in the journal entry:

X, Y and Z are partners sharing profits and losses in the ratio 5 : 3 : 2. They decide to share the future profits in the ratio 3 : 2 : 1. Workmen compensation reserve appearing in the balance sheet on the date if no information is available for the same will be:

R, S and T are partners in a firm sharing profits in the ratio of 3 : 3 : 2. From 1st April, 2021, they decided to share profits in the ratio of 3 : 2 : 1. On that date their Balance Sheet showed Contingency Reserve of ₹ 1,92,000. They decided to show this Contingency Reserve in the new Balance Sheet. The correct accounting treatment for the above is:

Any change in the relationship of existing partners which results at an end of the existing agreement and enforces making of a new agreement is called:

On reconstitution of a partnership firm, recording of an unrecorded liability will result in ______.

Revaluation of assets at the time of reconstitution is necessary because their present value may be different from their ______.

Super-profit is equal to ______ less ______.

Due to change in the profit sharing ratio, Anisha's gain is 1/5^th while Harit's sacrifice is 1/5^th. They decided to adjust the following without affecting their book values, by passing a single adjustment entry:

The necessary adjustment entry will be:

Ram and Krishna were partners sharing profits and losses in the ratio of 2 : 1. They admitted Shanker as a partner for `1/5` th share in the profits. For this purpose the Goodwill of the firm was to be valued on the basis of three times of last five years average profits. The profits for the last five years were:

Profit for 2020-21 was calculated after charging ₹ 10,000 for abnormal loss of goods by fire. The value of goodwill of the firm is:

The profits for 2019–20 are ₹ 2,000; for 2020–21 are ₹ 26,100 and for 2021-22 are ₹ 31,200. Closing Inventory for 2020–21 and 2021–22 includes the defective items of ₹ 2,200 and ₹ 6,200 respectively which were considered as having market value NIL. Calculate goodwill on simple average profit method.

It's better to use the 'Weighted Average Profit' method of calculation of Goodwill when ______.

Samiksha, Arshiya and Divya were partners in firm sharing profits and losses in the ratio of 5 : 3 : 2. With effect from 1st April 2022, they agreed to share future profits and losses in the ratio of 2 : 5 : 3. Their Balance Sheet showed a debit balance of ₹ 50,000 in the Profit and Loss Account and a balance of ₹ 40,000 in the Investment Fluctuation Fund. The market value of an investment is ₹ 30,000 against the book value of ₹ 50,000. Partners have decided, not to show revised value in the balance sheet and to pass an adjusting entry for it. Which of the following is the correct treatment of the above?

At the time of change in profit sharing ratio among existing partners, 'Reserves' are transferred to Partner's Capital Accounts in the following ratio:

A, B and C who were sharing profits and losses in the ratio of 4:3:2 decided to share the future profits and losses in the ratio to 2:3:4 with effect from 1^st April 2023. An extract of their Balance Sheet as at 31^st March 2023 is:

At the time of reconstitution, a certain amount of Claim on workmen compensation was determined for which B’s share of loss amounted to ₹ 5,000. The Claim for workmen compensation would be:

The balance in Partners’ Capital Accounts is ₹ 7,00,000 and that in Advertisement Suspense A/c is ₹ 2,00,000. Their normal profits are ₹ 60,000 and super profits are ₹ 10,000. What is the normal rate of return?

Goodwill is affected by the following factors except:

Choose the components required to calculate goodwill of a firm by capitalisation of average profits method.

P: The normal profits of a similar firm in the industry.

Q: The average profits of the firm.

R: The number of years purchase.

S: The actual capital employed in the business.

Jai and Veeru were in a partnership sharing Profit & Loss in the ratio 5 : 3. Their Capitals were ₹ 10,00,000 and ₹ 8,00,000 respectively. The firm was also having reserves of ₹ 7,00,000. Normal rate of return was 10%. Firm made average profits of ₹ 2,30,000 for the year ended March 31, 2025 (after adjustment of loss of machinery of book value of ₹ 2,00,000 by fire against which insurance claim of ₹ 1,50,000 was admitted). Value of goodwill as per Capitalisation of super profits will be:

To value the goodwill of a partnership firm at the time of its reconstitution, which one of the following items is added back to the previous year’s profit to find the normal profit?

Anil and Sunil are partners in a firm. On 1^st April 2024, their capital balances show as ₹ 3,00,000 and ₹ 2,00,000 respectively. On the same date, firm’s goodwill valued by Capitalisation of average profit method is determined at ₹ 3,50,000. Capitalised value of average profits and average profits are ₹ 8,50,000 and ₹ 1,70,000 respectively. What will be the normal commercial yield on capital invested in such business?

Net Assets minus Capital Reserve is ______.

On 1st April, 2024 partners' capital accounts showed a balance of ₹ 7,00,000 while the general reserve amounted to ₹ 1,00,000. If the normal rate of return is 15% and the goodwill of the firm is valued at ₹ 1,60,000 at 4 years's purchase of super profit, find the average profits of the firm.

A, B and C sharing profits and losses in the ratio of 3 : 2 : 1, decide to share future profits and losses in the ratio of 4 : 3 : 2. 'Investment Fluctuation Reserve' appeared in the books at ₹ 1,50,000 at the time of change in profit sharing ratio, and Investments (market value ₹ 3,90,000) appears at ₹ 4,50,000. In such a case:

A and B are partners with capitals of ₹ 3,00,000 and ₹ 2,00,000 respectively. Normal rate of return is 15% and goodwill calculated at 2 years purchase of super profits is valued at ₹ 1,00,000. What were the average profits of the firm?

A, B and C were partners sharing profits and losses in the ratio of 7 : 3 : 2. From 1st January, 2023 they decided to share profits and losses in the ratio of 8 : 4 : 3. Goodwill is ₹ 1,20,000. In Adjustment entry for goodwill:

On April 1, 2024 an existing firm had assets of ₹ 5,00,000 and liabilities of ₹ 1,00,000. If the normal rate of return is 10% and the goodwill of the firm is valued at ₹ 1,20,000 at 4 years' purchase of super profits, average profits of the firm will be:

A, B and Care partners in a firm sharing profits in the ratio of 3 : 4 : 1. They decided to share profits equally w.e.f. 1st April, 2024. On that date Workmen Compensation Reserve showed a balance of ₹ 2,70,000 and there was a claim of ₹ 1,50,000 against it.

In the adjustment entry:

Value of goodwill of a firm at 3 times of super profits is ₹ 54,000. Average profits of the firm are ₹ 60,000 (after an abnormal loss of ₹ 8,000). Normal rate of return is 10%. Capital invested in the firm will be ______.

P, Q and R are partners in a firm sharing profits in the ratio of 3 : 3 : 2. From 1st April 2024, they decided to share profits equally. On that date following balances appeared in their books:

Based on the above information you are required to answer the following alternate question:

If a Claim on account of Workmen's Compensation is estimated at ₹ 48,000, then in respect of Workmen Compensation:

P, Q and R are partners in a firm sharing profits in the ratio of 3 : 3 : 2. From 1st April 2024, they decided to share profits equally. On that date following balances appeared in their books:

Based on the above information you are required to answer the following alternate question:

If investments are valued at 4,50,000, then in respect of investments:

P, Q and R are partners in a firm sharing profits in the ratio of 3 : 3 : 2. From 1st April 2024, they decided to share profits equally. On that date following balances appeared in their books:

Based on the above information you are required to answer the following alternate question:

If goodwill of the firm is valued at ₹ 2,40,000, then in respect of goodwill:

Aarushi and Gauri are partners in a firm, sharing profits and losses in the ratio of 3 : 2. On 31st March, 2024, their Balance Sheet was as under:

The partners decided that with effect from 1st April, 2024, they would share profits and losses equally.

You are required to answer the following alternate question:

If investments are valued at 1,70,000, then

Aarushi and Gauri are partners in a firm, sharing profits and losses in the ratio of 3 : 2. On 31st March, 2024, their Balance Sheet was as under:

The partners decided that with effect from 1st April, 2024, they would share profits and losses equally.

You are required to answer the following alternate question:

If Goodwill is valued at 1,00,000, then:

Aarushi and Gauri are partners in a firm, sharing profits and losses in the ratio of 3 : 2. On 31st March, 2024, their Balance Sheet was as under:

The partners decided that with effect from 1st April, 2024, they would share profits and losses equally.

You are required to answer the following alternate question:

If General Reserve appearing in the Balance Sheet at 60,000 is not to be distributed, then:

P, Q and R were partners sharing profits and losses in the ratio 5 : 3 : 2. With effect from 1st April 2023, they decided to share future profits and losses in different ratio. On that date profit and loss account appearing on the asset side of the balance sheet was ₹ 4,00,000 and following entry was passed:

Find new Ratio:

Joey, Sam and Tex were partners sharing profits and losses in the ratio 5 : 3 : 2. W.e.f. 01 April, 2024, they decided to share future profits and losses in the ratio 2 : 1 : 1. For which of the following balances Tex will be credited at the time of reconstitution of the firm if the firm decides to continue with available accumulated profits and losses balances?

Assertion (A): Change in profit sharing ratio of existing partners does not amount to reconstitution of the partnership.

Reason (R): Dissolution of partnership firm leads to reconstitution of partnership.

In the context of the above two statements, which of the following is correct?

Assertion (A): Change in profit sharing ratio leads to dissolution of partnership and not the firm. Q.

Reason (R): Change in profit sharing ratio leads to dissolution of old firm and a new firm comes into existence.

In the context of the above two statements, which of the following is correct?

Assertion (A): At the time of change in profit sharing ratio, goodwill of the firm is not valued because there is no admission or retirement of a partner.

Reason (R): Goodwill of the firm is valued at the time of change in profit sharing ratio because the gaining partners compensate the sacrificing partners.

In the context of the above two statements, which of the following is correct?

Assertion (A): Goodwill is an intangible but not a fictitious asset.

Reason (R): Goodwill is an intangible asset because it does not have a physical existence but it is a valuable asset because it is helpful in earning excess profits.

In the context of the above two statements, which of the following is correct?

Assertion (A): Goodwill exists only when a firm earns more profits than normal profits.

Reason (R): Self generated goodwill is shown in the books because consideration in money or money’s worth has been paid for it.

In the context of the above two statements, which of the following is correct?

Assertion (A): Value of goodwill is subjective and not an exact value under any method.

Reason (R): Value of goodwill is subjective because it is based on estimates as to number of years purchase or rate of return on capital employed.

In the context of the above two statements, which of the following is correct?

Assertion (A): Goodwill is an intangible asset which is recognised (recorded) in the books of accounts only when consideration has been paid for it.

Reason (R): Valuation of goodwill is necessary at the time of reconstitution of a firm because sacrificing partners have to be compensated by gaining partners.

In the context of the above two statements, which of the following is correct?

Assertion (A): Disha, Era and Fija sharing profits in 2 : 2 : 1 decided to change their profit sharing ratio to 1 : 2 : 3. Profit and Loss (Dr.) balance is appearing in their books at ₹ 1,50,000. It will be carried forward and will be set off against future profits.

Reason (R): Debit balance of Profit and Loss Account came into existence before the change in profit sharing ratio and hence will be debited to partners in old profit sharing ratio.

In the context of the above two statements, which of the following is correct?

Assertion (A): A and B are partners sharing profits in the ratio of 2 : 1. They agreed that in future they will get interest on Capital @ 6% p.a. and will charge interest on drawings also at the same rate. They also decided that goodwill will be valued and sacrificing partners will be compensated by gaining partners.

Reason (R): Profit sharing ratio of A and B has not changed and hence there is no sacrificing or gaining partner. As such, goodwill need not be valued.

In the context of the above two statements, which of the following is correct?

Assertion (A): Change in the profit sharing ratio among the existing partners results in a change in their existing agreement.

Reason (R): Change in the profit sharing ratio among the existing partners results in a gain of additional share in future profits for some partners while a loss of a part thereof, for other partners.

In the context of the above statements, which of the following is correct?

Statement I: General reserve appearing in the Balance Sheet at the time of reconstitution of the firm will always be distributed among the old partners in the old profit sharing ratio.

Statement II: If the partners decide to retain the General Reserve, they may adjust it in the capital, current accounts of the partners in their sacrifice/ gaining ratio by passing the following entry:

In the light of the above statements, choose the most appropriate answer from the options given below:

Assertion (A): Goodwill is a fictitious asset.

Reason (R): Goodwill has a realisable value.

Which one of the following is correct?

X and Y were partners in a firm sharing profits in the ratio of 5 : 3. With effect from 1st April, 2023 they agreed to share profits equally. Calculate the individual partner's gain or sacrifice due to change in ratio.

Calculate the goodwill of the firm.