Partnership

Admission

Medium

common

Which statement among the following is NOT true about Goodwill?

Goodwill is the value of the reputation of a firm in respect of the profits expected in future, over and above the normal profits.

Goodwill is the capitalized value attached to the differential profit capacity of a business.

Goodwill can exist when the firm does not earn super profits, means any firm that earns normal profits or is incurring losses has goodwill

Goodwill is an intangible asset.

✅ Correct Option: 3

Goodwill represents the value of reputation of a firm that enables it to earn super profits (profits in excess of normal profits). Let's examine each statement:

Option 1 correctly defines goodwill as the value arising from expected future profits above normal profits. This is the fundamental concept of goodwill.

Option 2 is also correct. Goodwill can be calculated by capitalizing super profits using the formula:

$\text{Goodwill} = \text{Super Profit} \times \frac{100}{\text{Normal Rate of Return}}$

where Super Profit = Actual Profit - Normal Profit

Option 4 is correct. Goodwill is classified as an intangible asset as it lacks physical form but holds monetary value.

Option 3 is the incorrect statement. Goodwill exists only when a firm earns super profits.

When a firm earns only normal profits → Super Profit = 0 → No goodwill exists

When a firm incurs losses → Super Profit is negative → No goodwill exists

A firm earning normal profits or incurring losses cannot have goodwill because there are no extra earnings beyond what is normally expected. The very essence of goodwill is the ability to earn more than normal returns, which attracts a premium value for the business.

2026: 12 May Shift 1

Hem and Nem are partners in a firm sharing profits in the ratio of 3:2. Their capitals were Rs. 80,000 and Rs. 50,000 respectively. They admitted Sam on Jan. 1, 2025 as a new partner for 1/5 share in the future profits. Sam brought Rs. 60,000 as his capital and does not bring his share of goodwill in cash. Choose the correct journal entry from the following:

Particulars	Dr. Amount	Cr. Amount
Sam's Current A/c Dr.	34,000
To Hem's Capital A/c		20,400
To Nem's Capital A/c		13,600

Particulars	Dr. Amount	Cr. Amount
Sam's Current A/c Dr.	22,000
To Hem's Capital A/c		13,200
To Nem's Capital A/c		8,800

Particulars	Dr. Amount	Cr. Amount
Sam's Capital A/c Dr.	22,000
To Hem's Capital A/c		13,200
To Nem's Capital A/c		8,800

Particulars	Dr. Amount	Cr. Amount
Sam's Current A/c Dr.	22,000
To Hem's Current A/c		13,200
To Nem's Current A/c		8,800

2026: 6 June Shift 1

If, at the time of admission of a partner, any reserve and accumulated profits or losses exist in books of the firm, these should be transferred to:

2023: 11 June Shift 3

Match List - I with List - II.

List - I	List - II
(A) Increase in Furniture Value	(I) Credit side of Partner's Capital A/c
(B) Depreciation on Machinery	(II) Debit side of Partner's Capital A/c
(C) General Reserve	(III) Credit side of Revaluation A/c
(D) Goodwill appearing in Books	(IV) Debit side of Revaluation A/c

Choose the correct answer from the options given below :

2026: 29 May Shift 2

A business has earned average profits of Rs. 1,00,000 during the last few years and the normal rate of return in a similar business is 10%. Given that the value of net assets of the business is Rs. 8,20,000, the value of goodwill by capitalisation of super profits method will be:

2022: 20 July Shift 1

At the time of admission of a partner, if nothing is specified then new partner acquires his share from old partners.

2025: 29 May Shift 2

Kim and Sim are partners in a firm sharing profits in 4:3 ratio. They admitted Pim as a new partner for 1/4 share in the profits, which he acquired in the ratio of 3:2 from Kim and Sim. Determine the new profit sharing ratio of the partners.

Which statement among the following is NOT true about Goodwill?

Solution

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