Partnership

Admission

Medium

common

Arrange the steps involved under the super profit method of calculating goodwill-

(A) Calculate the normal profit on the firm's capital on the basis of the normal rate of return

(B) Calculate the average profit

(C) Calculate goodwill by multiplying the super profits by the given number of years' purchase

(D) Calculate the super profits by deducting normal profit from the average profits

Choose the correct answer from the options given below:

(A), (B), (C), (D)

(B), (C), (A), (D)

(B), (A), (D), (C)

(C), (B), (D), (A)

(A), (B), (C), (D)

(B), (C), (A), (D)

(B), (A), (D), (C)

(C), (B), (D), (A)

✅ Correct Option: 3

Under the Super Profit Method, goodwill is calculated based on the excess profits earned by a firm over and above the normal profits.

The logical sequence of steps is:

First, calculate what the firm has actually been earning:

(B) Calculate the average profit

This involves taking past years' profits and finding their average to determine the firm's typical earning capacity.

Second, determine what profit is considered "normal" for this business:

(A) Calculate the normal profit on the firm's capital on the basis of the normal rate of return

Normal Profit = Capital Employed × Normal Rate of Return / 100

This represents the expected profit that any similar business should earn on its capital.

Third, find the excess earnings (super profits):

(D) Calculate the super profits by deducting normal profit from the average profits

Super Profit = Average Profit - Normal Profit

Super profits represent the extra earning capacity of the business, which forms the basis for goodwill calculation.

Finally, convert super profits into goodwill:

(C) Calculate goodwill by multiplying the super profits by the given number of years' purchase

Goodwill = Super Profit × Number of Years' Purchase

The sequence is (B), (A), (D), (C) which corresponds to Option 3.

2026: 12 May Shift 1

The profits of firm for the five years are as follows:

Year	Profit (Rs.)
2021	2,00,000
2022	2,40,000
2023	3,00,000
2024	2,50,000
2025	1,80,000

Calculate the value of goodwill on the basis of four years' purchase of average profits.

2025: 26 May Shift 2

Arrange the Following Steps to Calculate Goodwill under the Super Profits Method-

(A) Calculate the normal profit on the firm's capital on the basis of the normal rate of return

(B) Calculate the average profit

(D) Calculate goodwill by multiplying the super profits by the given number of years' purchase

Choose the correct answer from the options given below:

2023: 20 June Shift 2

Calculate the Normal Rate of Return if normal profit is Rs.30,000, Assets Rs.5,30,000 and liabilities Rs.30,000, while calculating the value of goodwill of the firm at the time of admission of a partner.

2026: 21 May Shift 1

Dinesh, Ramesh and Suresh are partners in a firm sharing profits and losses in the ratio of 3:3:2. They decided to share the profits equally w.e.f. April 1, 2025. On that date, sundry debtors of Rs. 60,000 and stock of Rs. 1,20,000 appeared in the balance sheet. A provision of 5% on sundry debtors be made for doubtful debts. The value of stock be reduced to Rs. 1,12,000. The gain or loss on revaluation would be:

2025: 15 May Shift 2

If a new partner does not bring his share of goodwill in cash, the following treatment shall be made

2026: 21 May Shift 2

If the partners decide to withdraw the amount of premium for goodwill credited to their capital account, the following entry will be passed:

Solution

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