Partnership

Admission

Medium

common

Which of the following statements are correct in respect of goodwill?

(A) the present value of a firm's anticipated excess earnings

(B) the capitalised value attached to the differential profit capacity of a business'.

(C) goodwill exists only when the firm earns super profits

(D) Any firm that earns normal profits or is incurring losses also has goodwill.

Choose the correct answer from the options given below:

(A), (B) and (D) only

(A), (B) and (C) only

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

(B), (C) and (D) only

✅ Correct Option: 2

Analyzing each statement:

(A) The present value of a firm's anticipated excess earnings

This statement is correct. Goodwill represents the present value of future super profits (excess earnings over normal profits) that a business is expected to generate.

(B) The capitalised value attached to the differential profit capacity of a business

This statement is correct. Goodwill is essentially the capitalized value of the superior earning capacity of a business compared to normal returns in the industry.

(C) Goodwill exists only when the firm earns super profits

This statement is correct. For goodwill to exist and be measurable, a firm must earn super profits. Super profit is calculated as:

$\text{Super Profit} = \text{Actual Profit} - \text{Normal Profit}$

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

Only when actual profit exceeds normal profit does goodwill arise.

(D) Any firm that earns normal profits or is incurring losses also has goodwill

This statement is incorrect. A firm earning only normal profits has no excess earnings, hence no goodwill. Similarly, a loss-making firm cannot have goodwill as it has no super profits to capitalize.

Statements (A), (B), and (C) are correct while statement (D) is incorrect.

Correct Option: 2 → (A), (B) and (C) only

2026: 21 May Shift 2

Find out gain or loss of Revaluation A/c from the given information:

The fixed assets should be valued at Rs. 3,31,000 (book value Rs. 2,80,000).
A provision of 5% on sundry debtors be made doubtful debts (Debtors amounted to Rs. 90,000).
The value of stock be reduced to Rs. 1,12,000 (book value 1,90,000).

2025: 27 May Shift 1

Excess value of net assets over purchase consideration at the time of purchase of business is credited to

2025: 13 May Shift 1

X, Y and Z are partners in a firm. If M is admitted as a new partner, what would be its implication?

2026: 31 May Shift 1

The books of a business showed that the firm's capital employed on December 31, 2025 was Rs. 7,00,000 and the profits for the last five years were: 2021-Rs. 80,000; 2022-Rs. 85,000; 2023-Rs. 75,000; 2024- Rs. 80,000; 2025-Rs. 75,000. What will be the value of goodwill based on 3 years' purchase of the super profits of the business, given that the normal rate of return is 10%?

2025: 22 May Shift 1

A new partner can be admitted:

2025: 31 May Shift 1

A, B and C are partners in a firm sharing profits in the ratio of 3:2:1. D is admitted into the firm for 1/4th share in profits, which he gets 1/8th from B. The total capital of the firm is agreed upon as Rs. 1,20,000 and D is to bring in cash equivalent to 1/4th of this amount as his capital. The capitals of other partners are also to be adjusted in the ratio of their respective shares in profits. The capitals of A, B and C after all adjustments, are Rs. 40,000, Rs. 35,000 and Rs. 30,000 respectively. Calculate the new capital of A

Solution

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