Partnership

Admission

Medium

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:

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

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

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

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

✅ Correct Option: 4

The correct sequence for calculating Goodwill under Capitalisation of Average Profits Method follows a logical flow:

Step 1: Calculate Average Profits (C)

Average profits are ascertained based on the past few years' performance of the firm. This gives us the earning capacity of the business.

Step 2: Capitalise the Average Profits (D)

The average profits are capitalised using the normal rate of return to determine what the firm's total capital should be to earn such profits.

Capitalised Value = $\frac{\text{Average Profits} \times 100}{\text{Normal Rate of Return}}$

Step 3: Calculate Actual Capital/Net Assets (A)

The actual capital employed in the firm is ascertained by deducting outside liabilities from total assets. This represents the true net worth of the business.

Step 4: Compute Goodwill (B)

Goodwill is the difference between the capitalised value (from Step 2) and the actual net assets (from Step 3).

Goodwill = Capitalised Value of Average Profits - Net Assets

If the capitalised value exceeds net assets, it indicates the firm has goodwill because it's earning more than what would be expected from the capital employed.

The correct sequence is: (C), (D), (A), (B)

2026: 6 June Shift 1

Vijay and Sanjay are partners in a firm sharing profits and losses in the ratio of 3:2. They admitted Ajay into partnership with 1/4 share in profits. Ajay brings in Rs. 30,000 for capital and the requisite amount of premium in cash. The goodwill of the firm is valued at Rs. 20,000. The new profit sharing ratio is 2:1:1. Give necessary journal entry for the adjustment of goodwill.

2025: 14 May Shift 2

A and B are partners in a firm sharing profits in the ratio 2:1. C is admitted into the firm with 1/4th share in profits and he brings Rs. 30,000 as his capital. If the capitals of A and B are to be adjusted in their profit sharing ratio then the capital of A will be-

2025: 13 May Shift 2

Which account is credited if the value of net assets exceeds purchase consideration at the time of purchase of business?

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.

2025: 27 May Shift 2

Identify the steps involved in calculating goodwill under the capitalization of super profits method:

(A) Calculate capital of the firm, which is equal to total assets (excluding goodwill and fictitious assets) minus outside liabilities

(B) Multiply the super profits by the required rate of return multiplier

(D) Calculate super profits by deducting normal profits from average profits

(E) Calculate average profit for past years

Choose the correct answer from the options given below:

2025: 4 June Shift 2

A and B are partners sharing profits in the ratio of 2:1. C is admitted into the firm for 1/4 share of profits. C brings in Rs. 20,000 in respect of his capital. The capitals of old partners A and B, after all adjustments relating to goodwill, revaluation of assets and liabilities, etc., are Rs. 45,000 and Rs. 15,000 respectively, It is agreed that partners' capitals should be according to the new profit sharing ratio. A's Capital in the new firm will be:

Solution

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