Partnership

Admission

Easy

common

Any firm that earns normal profits or is incurring losses has ____________.

Less goodwill

More goodwill

No goodwill

Moderate goodwill

✅ Correct Option: 3

Goodwill represents the value of a firm's reputation and its ability to earn super profits (profits above normal profits).

Super Profit is calculated as:

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

When a firm earns normal profits:

$\text{Super Profit} = \text{Normal Profit} - \text{Normal Profit} = 0$

Since there are no super profits, there is no goodwill.

When a firm is incurring losses:

The actual profit is negative (loss), which is even less than normal profit. This means super profit is negative, indicating the firm has no capacity to generate extra earnings. Hence, no goodwill exists.

Goodwill arises only when a firm consistently earns more than normal profits, indicating superior earning capacity due to factors like brand reputation, customer loyalty, strategic location, or efficient management. Without super profits, these intangible advantages don't exist or aren't generating value, resulting in no goodwill.

2025: 13 May Shift 2

Super profit is -

2025: 14 May Shift 1

C will withdraw the capital amount after capital are adjusted in the ratio of their respective shares in profits. The amount is:

2023: 20 June Shift 2

A and B are partners sharing profits in the ratio of 2:1. C is admitted for the 1/4th share of profits, who brings Rs.20,000 as capital. After all adjustments related to goodwill, revaluation of assets and reassessment of liabilities etc, Capital of A and B are Rs.45,000 and Rs.15,000 respectively. It is agreed that partners capitals should be according to the new profit sharing ratio.

Determine the new capital of B.

2026: 21 May Shift 2

A business has earned average profits of Rs. 50,000 during the last few years and the normal rate of return in a similar business is 10%. Ascertain the value of goodwill by capitalisation of average profits method, given that the value of net assets of the business is Rs. 4,10,000.

2026: 21 May Shift 2

Charvi and Varun are partners in a firm sharing profits in the ratio of 4:1. They admitted Bhumika as a new partner for 1/4 share in the profits, which is acquired wholly from Charvi. Determine the new profit sharing ratio of the partners.

2022: 8 Aug Shift 2

The goodwill brought in by the new partner is distributed by old partner their:

Any firm that earns normal profits or is incurring losses has ____________.

Solution

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