Partnership

Admission

Easy

Read the passage carefully and answer the next 5 questions

The books of a business showed that the firm's capital employed on December 31, 2024, Rs. 5,00,000 and the profits for the last five years were: 2020-Rs. 40,000; 2021-Rs. 50,000; 2022-Rs. 55,000; 2023- Rs.70,000 and 2024-Rs. 85,000. You are required to find out the value of goodwill based on 2 years purchase of the super profits of the business, given that the normal rate of return is 10%.

In this case Average profit is -

Rs. 36,000

Rs. 60,000

Rs. 40,000

Rs. 27000

✅ Correct Option: 2

Given profits for the last five years:

2020: Rs. 40,000
2021: Rs. 50,000
2022: Rs. 55,000
2023: Rs. 70,000
2024: Rs. 85,000

Using the formula: Average Profit = $\frac{\text{Sum of Profits}}{\text{Number of Years}}$

Sum of Profits = 40,000 + 50,000 + 55,000 + 70,000 + 85,000 = Rs. 3,00,000

Average Profit = $\frac{3,00,000}{5}$ = Rs. 60,000

The average profit is calculated by adding all the profits over the five-year period and dividing by the number of years to get a single representative figure that smoothens out the fluctuations in annual profits.

2022: 20 July Shift 1

Provision for Doubtful debts to be shown in Revaluation Account :

2026: 23 May Shift 2

What is the correct sequence for calculating goodwill by Capitalisation of Average Profit Method?

A. Compute the value of goodwill

B. Find Capitalized value of the average profits

C. Ascertain the average profits

D. Ascertain the actual firm's capital

Choose the correct answer from the options given below:

2025: 15 May Shift 1

A, B and C are partners in a firm. If D is admitted as a new partner, what will be its affect?

2025: 15 May Shift 1

Arrange the following regarding admission procedure in the correct sequence.

(A) Giving share to the new partner.

(B) Treatment of Goodwill

(D) Preparation of Revaluation A/c

(E) Preparing Partner's Capital A/c and Balance Sheet

Choose the correct answer from the options given below:

2025: 13 May Shift 1

When a new partner brings his share of goodwill in cash, the amount is credited to:

2025: 30 May Shift 2

Arrange the following steps for calculating Goodwill under Capitalisation of Average Profits Method in correct sequence-

(A). Ascertain the actual firm's capital (net assets) by deducting outside liabilities from the total assets.

(B). Compute the value of goodwill by deducting net assets from the capitalised value of average profits.

(C). Ascertain the average profits based on the past few years' performance.

(D). Capitalize the average profits on the basis of the normal rate of return to ascertain the capitalised value of average profits.

Choose the correct answer from the options given below:

In this case Average profit is -

Solution

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