Partnership

Admission

Easy

Determine the value of firm's goodwill by capitalization of the super profit method if the average profits are Rs 1,00,000, super profits are Rs 18,000 and the normal rate of return is 10%.

Rs 10,00,000

Rs 5,00,000

Rs 1,80,000

Rs 88,000

✅ Correct Option: 3

Given Information:

Average Profits = Rs 1,00,000
Super Profits = Rs 18,000
Normal Rate of Return = 10%

Formula for Capitalization of Super Profit Method:

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

Calculation:

Goodwill = $\frac{18,000 \times 100}{10}$

Goodwill = $\frac{18,00,000}{10}$

Goodwill = Rs 1,80,000

Understanding the concept: The capitalization of super profit method treats super profit as a perpetual income stream. By capitalizing it at the normal rate of return, we find the present value of this perpetual super earning capacity, which represents the firm's goodwill.

In simpler terms, we're asking: "What capital amount, when invested at 10% normal return, would generate Rs 18,000 annually?" That amount is the goodwill value.

The correct answer is Option 3: Rs 1,80,000

2026: 13 May Shift 1

Aryan and Bala are partners in a firm. The admitted Charu as a partner with 20% share in profits of the firm. Charu brings Rs. 2,00,000 as her share of capital. Calculate the value of Charu's share of goodwill on the basis of her capital, given that the combined capital of Aryan and Bala after all adjustments is Rs. 5,00,000.

2025: 29 May Shift 2

When goodwill has to be inferred from the arrangement of capital and profit sharing ratio, it is called.

2025: 22 May Shift 2

While doing adjustment of partners capital, for the amount of capital to be brought in by the partner, the following entry will be passed:

2025: 3 June Shift 1

The journal entries are as under

Incoming partners' current A/c. Dr.

To Sacrificing partners capital A/c.

What statement among the following is TRUE for the above entry?

2022: 20 July Shift 1

Match List - I with List - II.

List - I	List - II
(a) Building undervalued	(i) Credited to Partner's Capital Account
(b) Building overvalued	(ii) Credited to Revaluation Account
(c) Capital withdrawn	(iii) Debited to Revaluation Account
(d) Additional capital introduced	(iv) Debited to Partner's Capital Account

Choose the correct answer from the options given below :

2025: 27 May Shift 1

Sameer and Yasmin are partners with capitals of Rs 15,00,000 and Rs 10,00,000 respectively. They agreed to share profits in the ratio of 3:2. The books are closed on March 31, every year. They admit Ravi on October 1, 2019 in the partnership, who bring Rs 12,00,000 as capital and Sameer also introduced additional capital Rs 3,00,000 on that date. Interest on partner's capital is provided @5% p.a. The amount of interest on the capital of Sameer for the year 2019-20 is-

Determine the value of firm's goodwill by capitalization of the super profit method if the average profits are Rs 1,00,000, super profits are Rs 18,000 and the normal rate of return is 10%.

Solution

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