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 ______.

Calculate the value of goodwill as on 1st April, 2025, on the basis of `2 1/2` year’s purchase of the average profits of the last five years. The profits and losses for the years ending 31st March were: 2020 ₹ 80,000; 2021 ₹ 1,00,000; 2022 Loss ₹ 30,000; 2023 ₹ 1,70,000; 2024 ₹ 1,60,000 and 2025 ₹ 1,80,000.

You are informed that the profits of the year ending 31st March 2024 included profit on sale of a fixed asset amounting to ₹ 50,000 and the profits for the year 2025 were affected by a loss due to fire amounting to ₹ 20,000.

Hint: Profit for the year 2020 will be ignored.

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.

A and B were in partnership sharing profits equally. With effect from 1st April, 2023 they agreed to share profits in the ratio of 4 : 3. Calculate the individual partner's gain or sacrifice due to change in ratio.

A, B and C were in partnership sharing profits in the ratio of 4 : 3 : 1. The partners agreed to share future profits in the ratio of 5 : 4 : 3. Calculate each partner's gain or sacrifice due to change in ratio.

Mahesh, Naresh and Om were partners sharing profits in the ratio of 2 : 3 : 4. With effect from 1st April, 2023 they agreed to share profits in the ratio of 1 : 2 : 3. Calculate each partner's gain or sacrifice due to change in ratio.

Madhur and Co. acquired the business of Vishu for a purchase consideration of ₹ 11,00,000 which was paid by cheque. The assets and liabilities taken over was as follows:

You are required to assertain the value of goodwill and pass necessary Journal entries.

The goodwill of a firm is valued at 4 years’ purchase of average profits of last five years. The profits of the last five years were:

Calculate the amount of goodwill.

X purchased the business of Y from 1st April, 2023. For this purpose goodwill is to be valued at 100% of the average annual profits of the last four years. The profits shown by Y’s business for the last four years were:

Verification of books of accounts revealed the following:

1. During the year ended 31st March, 2021, a machine got destroyed in accident and ₹ 60,000 was written off as loss in Profit and Loss Account.
2. On 1st July 2021, Two Computers costing ₹ 40,000 each were purchased and were debited to Travelling Expenses Account on which depreciation is to be charged @ 10% p.a. on Straight Line Method.

Calculate the value of goodwill.

Hint: Profit for the year ended 31st March 2022 ₹ 2,24,000 and for 2023 ₹ 1,92,000.

A, B and C are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. They decide to take D into partnership for `1/4`th share on 1st April, 2022. For this purpose, goodwill is to be valued at 3 times the average annual profits of the previous four or five years whichever is higher. The agreed profits for goodwill purpose of the past five years are as follows:

Calculate the value of Goodwill.

A, B and C are partners sharing profits and losses equally. They agree to admit D for equal share. For this purpose goodwill is to be valued at 3 year’s purchase of average profits of last 5 years which were as follows:

On 1st October, 2021 a computer costing ₹ 40,000 was purchased and debited to office expenses account on which depreciation is to be charged @ 25% p.a. Calculate the value of goodwill.

The profits earned by a firm during the last four years were as follows:

Calculate the value of goodwill on the basis of three year’s purchase of weighted average profits. Weights to be used are 1, 2, 3 and 4 respectively to the profits for 2021, 2022, 2023 and 2024.

Following information is available about the business of a firm:

1. Profits: In 2022, ₹ 40,000; In 2023, ₹ 50,000; In 2024, ₹ 60,000.
2. Nonrecurring income of ₹ 1,000 is included in the profits of 2023.
3. Profits of 2022 have been reduced by ₹ 6,000 because goods were destroyed by fire.
4. Goods have not been insured but it is thought to insure them in future. The insurance premium is estimated at ₹ 400 per year.
5. Reasonable remuneration of the proprietor of business is ₹ 6,000 per year, but it has not been taken into account for calculation of above mentioned profits.
6. Profits of 2024 include ₹ 5,000 income on investment.

Goodwill is agreed to be valued at two year’s purchase of the weighted average profits of the past three years. The appropriate weights to be used are 2022 - 1; 2023 - 2; 2024 - 3.

Calculate the value of goodwill on the basis of three year’s purchase of the weighted average profits of the last five years. Profits to be weighted 1, 2, 3, 4 and 5, the greatest weightage to be given to last year. Profits of the last five years were:

Books of Accounts of the firm revealed that:

1. Closing Stock as on 31st March, 2019 was overvalued by ₹ 40,000.
2. Repairs to Machinery ₹ 60,000 were wrongly debited to Machinery Account on 1st July, 2021. Depreciation was charged on Machinery @ 20% p.a. on diminishing balance method.

Hint: Weighted Profit for the year ended 31st March 2022 ₹ 5,16,000 and 2024 ₹ 10,51,000.

A firm earned profits of ₹ 80,000, ₹ 1,00,000, ₹ 1,20,000 and ₹ 1,80,000 during 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The firm has capital investment of ₹ 5,00,000. A fair rate of return on investment is 15% p.a. Calculate goodwill of the firm based on three years' purchase of average super profits of last four years.

Capital invested in a firm is ₹ 3,00,000. Normal rate of return is 10%. Average profits of the firm are ₹ 41,000 (after an abnormal loss of ₹ 2,000). Calculate goodwill at five times the super profits.

The capital of the firm of Rajat and Karan is ₹ 15,00,000, and the market rate of interest is 12%. The annual salaries of Rajat and Karan are ₹ 20,000 and ₹ 30,000, respectively. The profits for the last three years were ₹ 2,40,000, ₹ 2,80,000, and ₹ 3,20,000. Goodwill of the firm is to be valued on the basis of two years’ purchase of the last three years’ average super profits. Calculate the goodwill of the firm.

Find out the capital employed from the following information:

Value of Goodwill of a firm at 3 years’ purchase of Super Profits is ₹ 3,75,000. Average Capital Employed in the firm is ₹ 15,00,000. Profits of the last 3 years are:

Find out the Normal Rate of Return.

A and B are partners. They admit C for `1/4"th"` share in profits. For this purpose goodwill is to be valued at three year’s purchase of super profits.

Following information is provided to you:

The normal rate of return is 15% p.a. Average Profits are ₹ 2,00,000 per year. You are required to calculate C’s share of goodwill.

Hint: Sundry Assets will be ignored.

On April 1^st 2024, an existing firm had assets of ₹ 5,00,000 including cash of ₹ 20,000. The firm had a General Reserve of ₹ 90,000, partner’s capital accounts showed a balance of ₹ 3,80,000 and creditors amounted to ₹ 30,000. If the normal rate of return is 20% and the goodwill of the firm is valued at ₹ 64,000 at 4 year’s purchase of super profit, find the average profits of the firm.

Following balances appeared in the books of a partnership firm:

Profit & Loss A/c (Debit) balance existed at ₹ 3,00,000. The normal rate of return for similar business is 10%.

If the goodwill of the firm is ₹ 60,000 at 4 years' purchase of super profit, find the average profits of the firm.

The average profits of a firm is ₹ 48,000. The total assets of the firm are ₹ 8,00,000. Value of outside liabilities is ₹ 5,00,000. Average rate of return in the same business is 12%. Calculate goodwill from capitalisation of average profits method.

Hint: Capital Employed = Assets − Outside Liabilities.

A firm’s average net profits of last four years were ₹ 2,50,000. It includes an abnormal profit of ₹ 19,000 each year. The firm had assets of ₹ 15,50,000 including cash of ₹ 20,000, Debtors ₹ 2,35,000 and Stock ₹ 1,15,000. Its creditors were ₹ 3,00,000 and outstanding expenses were ₹ 50,000. The value of the goodwill as per the capitalization of average profit method was valued at ₹ 4,50,000. Find out the Normal Rate of Return.

Raju and Rinku were partners sharing profits and losses in the ratio 3 : 2. They admitted Sumit as a new partner for 1/3 share. On the date of admission Capitals of Raju and Rinku were ₹ 5,50,000 and ₹ 6,50,000 respectively, also, General Reserve of ₹ 3,00,000 and Profit and Loss (Dr.) balance of ₹ 1,00,000 were appearing in the books of accounts. Firm made an average profit of ₹ 2,40,000 during the last few years and the normal rate of earning was expected to be 12%. Calculate the Goodwill of the firm by Capitalisation Method.

Dipu and Raju were partners in a firm. Following balances were appearing in the books of the firms:

Profits for last three years ended 31st March, were:

Calculate Goodwill of the firm by Capitalisation of Super Profit Method; if normal rate of return in the similar business is 8% р.а.

Jay and Vijay were partners sharing profits and losses equally. They decided to share future profits in the ratio of 3 : 2 w.e.f. 1st April, 2026.

From the following Balance Sheet as at 31st March, 2026, calculate the value of goodwill on the basis of Capitalisation of Super Profit Method if the normal rate of return is 10% and average profit is ₹ 1,80,000.

The following information relates to a partnership firm:

1. Profits/Losses for the last six years:
   

   1st year	₹ 20,000 Profit
   2nd year	₹ 60,000 Profit
   3rd year	₹ 10,000 Loss
   4th year	₹ 60,000 Profit
   5th year	₹ 50,000 Profit
   6th year	₹ 72,000 Profit

2. Average Capital Employed is ₹ 2,00,000.
3. Rate of normal profit is 15%.

Find out the value of goodwill on the basis of:

1. Four years’ purchase of average profits.
2. Four years’ purchase of super profits.
3. Capitalisation of average profits.
4. Capitalisation of super profits.

A and B are partners sharing profits and losses in the ratio of 3 : 1. It was decided that with effect from 1st April, 2024 the profit sharing ratio will be 5 : 3. Goodwill is to be valued at 2 years' purchase of average of 3 years' profits. The profits for the year ending 31st March 2022, 2023 and 2024 were 36,000, ₹32,000 and 40,000 respectively.

Pass the necessary journal entry for the treatment of goodwill.

P, Q and R are partners sharing profits equally. They decided that in future R will get 1/7 share in profits. Goodwill already exists in the books at ₹ 27,000. On the day of change, firm's Goodwill is valued at ₹ 42,000. Give Journal Entries arising on account of change in profit sharing ratio.

Hint: New Ratios `3/4 : 3/7 : 1/7.  P and Q  "gain"  2/21  "each and R sacrifices"  4/12`.

Ravi, Jay and Vipin are partners sharing profits in the ratio of 5 : 4 : 1. It is now agreed thay they will share future profits in a new ratio.

Following Journal entry is passed for adjustment of goodwill due to change in profit-sharing ratio:

Find out new profit sharing ratio of Ravi, Jay and Vipin.

A and B are partners in a firm sharing profits in the ratio of 3 : 2. They decided to share profits in the ratio of 3 : 4 w.e.f., April 1, 2024. On that date there was a credit balance of ₹ 70,000 in their Profit and Loss Account. Pass the necessary journal entry assuming that partners decide to distribute the profits.

A, B and C are partners sharing profits and losses in the ratio of 1 : 2 : 3. From April 1, 2024, they decided to share the profits in the ratio of 2 : 3 : 4. On that date, Profit and Loss Account disclosed a debit balance of ₹ 90,000. Record the necessary journal entry for the distribution of the balance in the Profit and Loss Account.

A and B sharing profits and losses in the ratio of 2 : 3, decide to share future profits and losses equally with effect from 1st April, 2024. An extract of their Balance Sheet as at 31st March, 2024 is as follows:

Show the accounting treatment under the following alternative cases:

Case (i) If there is no other information.

Case (ii) If a claim on account of workmen's compensation is estimated at ₹ 25,000.

Case (iii) If a claim on account of workmen's compensation is estimated at ₹ 40,000.

Case (iv) If a claim on account of workmen's compensation is estimated at ₹ 50,000.

P, Q, and R were partners in firm sharing profits in the ratio of 1 : 1: 2. On 31^st March 2018, their balance sheet showed a credit balance of ₹ 9,000 in the profit and loss account and a Workmen Compensation Fund of ₹ 64,000. From 1^st April 2018, they decided to share profits in the ratio of 2: 2: 1. For this purpose, it was agreed that:
(a) Goodwill of the firm was valued at ₹ 4,00,000.
(b) A claim on account of workmen compensation of ₹ 30,000 were admitted.
Pass necessary journal entries on the reconstitution of the firm.

A, B and C sharing profits and losses in the ratio of 4 : 3 : 2, decide to share profits and losses in the ratio of 2 : 3 : 4 with effect from 1st April, 2024. Following is an extract of their Balance Sheet as at 31st March, 2024:

Show the accounting treatment under the following alternative cases:

Case (i) If there is no other information.

Case (ii) If the market value of Investments is ₹ 6,00,000.

Case (iii) If the market value of Investments is ₹ 5,91,000.

Case (iv) If the market value of Investments is ₹ 5,28,000.

Case (v) If the market value of Investments is ₹ 6,60,000.

Samiksha, Ash and Divya were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. With effect from 1st April, 2019, 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 Reserve. For this purpose, it was agreed that:

1. Goodwill of the firm be valued at ₹ 3,00,000.
2. Investments of book value of ₹ 5,00,000 be valued at ₹ 4,80,000.

Pass the necessary journal entries to record the above transactions in the books of the firm.

P, Q and R are partners in a firm sharing profits in the ratio of 2 : 2 : 1. On March 31, 2024, their Balance Sheet showed a general reserve of ₹ 3,00,000. On that date they decided to share future profits equally. Record the necessary journal entry in the books of the firm under the following circumstances:

1. When they want to transfer the general reserve in their capital accounts.
2. When they don't want to transfer general reserve in their capital accounts and prefer to record an adjustment entry for the same.

Mahi and Neena are partners sharing profits and losses equally. From 1st April, 2026, they decided to share profits and losses in the ratio of 2 : 3. The firm's Balance Sheet shows debit balance of Profit and Loss Account of ₹ 40,000.

Partners decided to continue with the above balance in the books of the reconstituted firm.

Pass necessary adjustment entry.

X, Y and Z were sharing profits and losses in the ratio of 5 : 3 : 2. They decided to share future profits and losses in the ratio of 2 : 3 : 5 with effect from 1.4.2022. They decided to record the effect of the following, without effecting their book values:

Pass the necessary adjusting entry.

Rambha and Urvashi were partners in a firm sharing profits and losses in the ratio of 13 : 12. From 1^st April, 2024, they decided to share future profits and losses in the ratio of 12 : 13. On this date, their balance sheet showed a debit balance of ₹ 2,50,000 in Advertising Suspense Account and a balance of ₹ 5,00,000 in Contingency Reserve. Partners decide to write off the balance of the Advertising Suspense Account but decided not to distribute Contingency Reserve.

Pass necessary journal entries for the above transactions on there constitution of the firm. Show your working clearly.

Tanvi, Rani and Divya are sharing profits and losses in an agreed ratio. They decide to share profits and losses in the ratio of 5 : 2 : 3 with effect from 1st April, 2026. They also decide to record the effect of the following without affecting their book values by passing a single adjustment journal entry:

1. General Reserve ₹ 2,30,000
2. Profit & Loss A/c (Cr.) ₹ 1,20,000
3. Advertisement Suspense A/c ₹ 50,000

Calculate each partner's gain or sacrifice due to change in profit sharing ratio and their old profit sharing ratio.

Hint: Old Profit Share = New Profit Share + Sacrificed Share or – Gained Share.

A, B, C and D are partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1 : 1. They decided to share future profits and losses in the ratio of 3 : 2 : 2 : 3. For this purpose goodwill of the firm valued at ₹ 1,50,000. There was also a reserve of ₹ 60,000 in the books of the firm.

Find out sacrifice ratio and gaining ratio and pass necessary journal entry assuming that reserve is not to be distributed.

A, B and C are partners in a firm sharing profits in the ratio of 3 : 2 : 1. Their Balance Sheet as at 31st March, 2026 is as under:

From 1st April, 2026, the partners agreed to share future profits in the ratio of 4 : 3 : 3 and make the following adjustments:

1. Premises will be appreciated by 10% and stock by ₹ 10,000.
2. A provision for doubtful debts is to be made on debtors @ 4%.
3. Sundry Creditors be reduced by ₹ 15,000.
4. Machinery will be depreciated by 5%.
5. Goodwill of the firm is valued at ₹ 48,000.

Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the reconstituted firm.

Hint: A Sacrifices `3/10`, B Sacrifices `1/30` and C gains `4/30`th share.

A, B and C are partners sharing profits and losses in the ratio of 2 : 2 : 1. From 1st April, 2023 they decided to share future profits and losses equally.

Following balances appeared in their books:

It was agreed that:

1. Goodwill should be valued at two years' purchase of super profits. Firm's average profits are ₹ 75,000. Capital invested in the business is ₹ 6,00,000 and normal rate of return is 10%.
2. Furniture (book value of ₹ 50,000) be reduced to ₹ 30,000.
3. Computers (book value of ₹ 40,000) be reduced by ₹ 10,000.
4. Claim on account of Workmen's Compensation amounted to ₹ 50,000.
5. Investments (book value of ₹ 30,000) were revalued at ₹ 25,000.

Pass necessary journal entries for the above.

Asha, Rina and Chahat were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1.Their Balance Sheet as at 31st March, 2019 was as follows:

Asha, Rina and Chahat decided to share future profits equally with effect from 1st April, 2019. For this, it was agreed that:

1. Goodwill of the firm be valued at ₹ 1,50,000.
2. Bad debts amounted to ₹ 40,000. A provision for doubtful debts was to be made @ 5% on debtors.

Pass the necessary journal entries to record the above transactions in the books of the firm.

X and Y are partners sharing profits and losses in the ratio of 4 : 3. Their Balance Sheet as at 31st March, 2026 stood as follows:

They decided that with effect from 1st April, 2026, they will share profits and losses in the ratio of 2 : 1. For this purpose they decided that:

1. Fixed assets are to be depreciated by 10%.
2. A provision of 6% be made on debtors for doubtful debts.
3. Stock be valued at ₹ 1,90,000.
4. An amount of ₹ 3,700 included in creditors is not likely to be claimed.

Partners decided to record the revised values in the books. However, they do not want to disturb the reserves. You are required to prepare journal entries, capital accounts of the partners and the revised balance sheet.

P, Q and R are in partnership sharing profits and losses in the ratio of 5 : 4 : 3. On 31st March 2026, their balance sheet was as follows:

It was decided that with effect from 1st April 2026, the profit sharing ratio will be 4 : 3 : 2. For this purpose the following revaluation were made:

1. Furniture be taken at 80% of its value.
2. Stock be appreciated by 20%.
3. Plant and Machinery be valued at ₹ 4,00,000.
4. Create provision for doubtful debts for ₹ 10,000 on debtors.
5. Outstanding expenses be increased by ₹ 3,000.

Partners agreed that altered values are not to be recorded in the books and they also do not want to distribute the general reserve.

You are required to post a single journal entry to give effect to the above. Also prepare the revised Balance Sheet.

L, M and N are partners sharing profits and losses in equal proportion. On 31st March 2026, their balance sheet was as follows:

The partners decided that with effect from 1st April 2026, they will share profits and losses in the ratio of 4 : 2 : 1. For this purpose goodwill is to be valued at 2 years' purchase of the average profits of the last four years, which were:

They further agreed that:

1. Provision for doubtful debts be increased by ₹ 2,000.
2. Stock be appreciated by 20% and fixed assets be depreciated by 10%.
3. Creditors be taken at ₹ 49,000.

Partners do not desire to record the revised values of assets and liabilities in the books. They also desire to leave the reserve and surplus undisturbed.

You are required to give effect to the change in profit sharing ratio by passing a single journal entry. Also prepare the revised balance sheet.

Amit, Archit and Akshat are partners in a firm in the ratio of 3 : 2 : 1. On 1st April, 2026 they decided to share the profits in future in the ratio of 7 : 5 : 4. On this date General Reserve is ₹ 38,000 and profit on revaluation of assets and liabilities being ₹ 34,000. It was decided that adjustment should be made without altering the figures in the Balance Sheet. Make adjustment by one single journal entry.

The average profit earned by a firm is ₹ 75,000 which includes undervaluation of stock of ₹ 5,000 on an average basis. The capital invested in the business is ₹ 7,00,000 and the normal rate of return is 7%. Calculate goodwill of the firm on the basis of 5 times the super profit.

A firm earns a profit of ₹ 37,000 per year. In the same business a 10% return is generally expected. The total assets of the firm are 4,00,000. The value of outside liabilities is ₹ 90,000. Find out the value of goodwill.

Rishi and Suman were partners in a firm. Their capitals were Rishi ₹ 1,20,000 and Suman ₹ 80,000. The normal rate of return in similar business is 12%. The profits of the last four years were:

Calculate goodwill of the firm based on:

1. Three years’ purchase of the last three years’ average profits.
2. Capitalisation of last 3 years’ super profit.

Hint: Average Profit of last 3 years is ₹ 30,000.

An existing firm had assets of ₹ 4,00,000 including cash of ₹ 15,000. Its creditors amounted to ₹ 20,000 on that date. The partner’s capital accounts showed a balance of ₹ 3,00,000 and reserves amounted to ₹ 80,000. If the normal rate of return is 10% and the goodwill of the firm is valued at ₹ 75,000 at 3 year’s purchase of super profits, find the average profits of the firm.

Yash and Karan were partners in an interior designer firm. Their fixed capitals were ₹ 6,00,000 and ₹ 4,00,000 respectively. There were credit balances in their current accounts of ₹ 4,00,000 and ₹ 5,00,000 respectively. The firm had a balance of ₹ 1,00,000 in General Reserve. The firm did not have any liability. They admitted Radhika into partnership for `1/4`th share in the profits of the firm. The average profits of the firm for the last five years were ₹ 5,00,000. Calculate the value of goodwill of the firm by capitalization of average profits method. The normal rate of return in the business is 10%.

A Partnership firm earned net profits during the last three years as follows:

The capital employed in the firm throughout the above mentioned period has been ₹ 4,00,000. Having regard to the risk involved, 15% is considered to be a fair return on the capital. The remuneration of all the partners during this period is estimated to be ₹ 1,00,000 per annum.

Calculate the value of goodwill on the basis of

1. two year’s purchase of super profits earned on average basis during the above mentioned three years.
2. by capitalisation of average profits method.

Average profit of the firm is ₹ 3,00,000. Total assets of the firm are ₹ 24,00,000 whereas Partner’s Capital is ₹ 20,00,000. If the normal rate of return in a similar business is 12% of the capital employed, what is the value of goodwill by Capitalisation of Super Profit?

The following information relates to a partnership firm:

1. Sundry Assets of the firm ₹ 6,80,000. Outside Liabilities ₹ 60,000.
2. Profits and losses for the past years: Profit 2021 ₹ 50,000; Loss 2022 ₹ 10,000; Profit 2023 ₹ 1,64,000 and Profit 2024 ₹ 1,80,000.
3. The normal rate of return in a similar type of business is 12%.

Calculate the value of goodwill on the basis of:

1. Three year’s purchase of average profits.
2. Three year’s purchase of super profits.
3. Capitalisation of average profits.
4. Capitalisation of super profits.

X, Y and Z are partners sharing profits in the ratio of 5 : 4 : 1. It is now agreed that they will share future profits in the ratio of 3 : 3 : 4. Goodwill is valued at ₹ 1,00,000. You are required to pass a single journal entry for the treatment of goodwill.

Charu and Dinesh have been sharing profits in the ratio of 3 : 1. The net profits for the past four years have been ₹ 60,000; ₹ 50,000; ₹ 90,000 and ₹ 1,20,000 respectively. It is now agreed that in future Dinesh is to have 2/5th share in profits and for that purpose goodwill is to be valued on the basis of `2 1/2` years' purchase of average profits of the past four years. Give journal entry for the treatment of goodwill.

P, Q and R are partners sharing profits and losses in the ratio of 5 : 3 : 2. From 1st April, 2024, they decide to share profits and losses in equal proportions. The partnership deed provides that in the event of any change in profit sharing ratio, the goodwill should be valued at three years' purchase of the average of five years' profits. The profits and losses of the preceding five years ending 31st March are:

Profits: 2020: ₹ 60,000, 2021 : ₹ 1,50,000, 2022 : ₹ 1,70,000, 2023 ₹ 1,90,000.

Loss: 2024: ₹ 70,000.

Give the necessary journal entry to record the above change.

A and B have been carrying on business in partnership with fixed capitals of ₹ 2,40,000 and ₹ 1,20,000 respectively and sharing profits in the same proportion. They decided that with effect from April 1, 2024 they would share profits and losses in the ratio of 3 : 2. For this purpose goodwill is to be valued at three years' purchase of the average of preceding three years' profits. The profits for the years ending 31st March were 2021 : ₹ 75,000; 2022 : ₹ 60,000; 2023 : ₹ 80,000 and 2024 : ₹ 1,30,000. Give the necessary journal entry.

Note: Since the capitals are fixed, adjustment will be made through current accounts.

A, B and C were partners in a firm sharing profits in the ratio of 1 : 3 : 2. They decided that with effect from 1st April, 2026, they will share profits in the ratio of 4: 6 : 5. For this purpose the goodwill of the firm is valued at the total of preceding three years' profits. The profits were:

Reserves and Profits appeared in the balance sheet at ₹ 40,000 and ₹ 30,000 respectively. Partners do not want to distribute the reserves and profits appearing in the balance sheet. Pass a single journal entry to record the change.

X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2. Their position as at 31st March 2026 was as follows:

It was decided that with effect from 1st April 2026, profit and loss sharing ratio will be 3 : 3 : 1. They agreed on the following terms:

1. Goodwill of the firm be valued at two years' purchase of the average super profits of last three years. Average profits of the last three years are 1,08,000, while the normal profits may be taken at ₹ 66,000.
2. Provision on debtors be reduced by ₹ 2,000.
3. Value of stock be increased by 10% and machinery be valued at ₹ 1,00,000.
4. An item of ₹ 3,000 included in sundry creditors is not likely to be claimed.

Partners do not want to record the altered values of assets and liabilities in the books. Pass an entry to give effect to the above and prepare the revised balance sheet.

The following is the balance sheet of a firm as at 31st March, 2026:

On 1st April, 2026, the assets and liabilities were revalued as under:

A provision of 5% was required on debtors. Goodwill of the firm is valued at ₹ 1,70,000. Partners agreed that from 1st April, 2026 they will share profits in the ratio of 4 : 3 : 2 : 1 instead of their former ratio of 5 : 4 : 2 : 1. They do not want to record the revised values of assets and liabilities in the books. They also do not want to disturb the reserves and Profit & Loss A/c.

Pass a single journal entry to give effect to the above.

Dinesh, Ramesh and Suresh are partners in a firm sharing profits and losses in the ratio of 3 : 3 : 2. From 1st April, 2018 they decided to share the future profits equally. On this date, the General Reserve showed a balance of ₹ 1,60,000; Revaluation of fixed assets resulted into a gain of ₹ 1,02,000 and stock resulted into a loss of ₹ 22,000. On this date the goodwill of the firm was valued at ₹ 3,60,000.

Pass necessary journal entries for the above transactions on reconstitution of the firm.

Hari, Kunal and Uma are partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. From 1st April, 2018 they decided to share future profits and losses in the ratio of 2 : 5 : 3. Their Balance Sheet showed a balance of ₹ 75,000 in the Profit and Loss Account and a balance of ₹ 15,000 in Investment Fluctuation Fund. For this purpose, it was agreed that:

1. Goodwill of the firm was valued at ₹ 3,00,000.
2. That investments (having a book value of ₹ 50,000) were valued at ₹ 35,000.
3. That stock having a book value of ₹ 50,000 be depreciated by 10%.

Pass the necessary journal entries for the above in the books of the firm.

Hint:

1. P & L Balance of ₹ 75,000 will be distributed in old ratio.
2. Entry for decrease in the value of Investments:
   

   Investment Fluctuation Fund A/c   ...Dr.	15,000
   To Investment A/c		15,000
   There will be no effect of decrease in the value of investments on Revaluation A/c

Doremon, Shinchan and Nobita are partners sharing profits and losses in the ratio of 3 : 2 : 1. With effect from 1st April, 2022 they agree to share profits equally. For this purpose, goodwill is to be valued at two year’s purchase of the average profit of the last four years which were as follows:

On 1st April, 2021 a Motor Bike costing ₹ 50,000 was purchased and debited to travelling expenses account, on which depreciation is to be charged @ 20% p.a by Straight Line Method. The firm also paid an annual insurance premium of ₹ 20,000 which had already been charged to Profit and Loss Account for all the years.

Journalise the transaction along with the working notes.

Calculate the goodwill of the firm.

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?