Partnership

Admission

Medium

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%.

Goodwill is -

Rs. 20000

Rs. 9000

Rs. 14000

Rs. 27000

✅ Correct Option: 1

Average Profit Calculation:

Total profits for 5 years = Rs. 40,000 + Rs. 50,000 + Rs. 55,000 + Rs. 70,000 + Rs. 85,000 = Rs. 3,00,000

Average Profit = $\frac{\text{Total Profits}}{\text{Number of Years}}$ = $\frac{3,00,000}{5}$ = Rs. 60,000

Normal Profit Calculation:

Normal Profit = Capital Employed × Normal Rate of Return

Normal Profit = Rs. 5,00,000 × $\frac{10}{100}$ = Rs. 50,000

This represents the profit that any business with this capital should normally earn at the market rate.

Super Profit Calculation:

Super Profit = Average Profit - Normal Profit

Super Profit = Rs. 60,000 - Rs. 50,000 = Rs. 10,000

Super profit represents the excess earnings above normal expectations, which is the basis for goodwill valuation.

Goodwill Calculation:

Goodwill = Super Profit × Number of Years' Purchase

Goodwill = Rs. 10,000 × 2 = Rs. 20,000

The answer is Option 1: Rs. 20,000

2024

Kavita and Lalita are partners, sharing profits in the ratio of 2:1. They decide to admit Mohan for 1/4th share in profits with a guaranteed amount of ₹ 25,000. Both Kavita and Lalita undertake to meet the liability arising due to the guaranteed amount to Mohan in their respective profit sharing ratio. The firm earned profits of ₹ 76,000 for the year 2022-23. The deficiency borne by Kavita is:

2025: 4 June Shift 2

When a new partner is admitted, the increase in the value of the assets is debited to which account?

2025: 13 May Shift 1

On the admission of a new partner, an increase in the value of assets is debited to:

2025: 30 May Shift 1

At the time of admission of a new partner, general reserve appears in the old balance sheet is transferred to:

2025: 15 May Shift 2

Which of the following is not one of the method of valuation of goodwill?

2026: 13 May Shift 1

Anju and Bhawna are partners in a firm sharing profits in the ratio of 9/12 and 5/20. Chetna was admitted for 7/35 share and she could not bring her share of goodwill in cash. Goodwill of firm is valued at Rs. 50,000. Journalise :-

Goodwill is -

Solution

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