Partnership

Accounting

Easy

There is a need for valuation of goodwill under which of the following cases

(A) Admission of new partner

(B) Retirement of a partner

(C) Dissolution of a firm involving sale of business as a going concern.

(D) Amalgamation of partnership firms.

Choose the correct answer from the options given below:

(B) and (D) only

(A), (C) and (D) only

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

(B), (C) and (D) only

✅ Correct Option: 3

Goodwill represents the value of a firm's reputation and earning capacity beyond its tangible assets. Valuation is required whenever there's a change in partnership structure or ownership that affects partners' rights.

Analysis of each case:

(A) Admission of new partner: Goodwill valuation is necessary as the incoming partner must compensate existing partners for their share in the firm's established reputation. The new partner either brings premium or goodwill is adjusted through capital accounts.

(B) Retirement of a partner: The retiring partner is entitled to their share of the firm's goodwill accumulated during their tenure. Goodwill must be valued to determine the amount payable to the retiring partner.

(C) Dissolution involving sale as going concern: When the business is sold as a going concern (continuing operations under new ownership), goodwill forms part of the sale consideration. The buyer pays for goodwill along with other assets, making its valuation essential.

(D) Amalgamation of firms: When partnership firms merge, each firm's goodwill must be valued to determine the appropriate profit-sharing ratios and capital contributions of partners in the newly formed entity.

In all four situations, there's either a change in partnership composition or transfer of business interest, requiring goodwill valuation to protect partners' rights and ensure fair compensation.

Correct Answer: Option 3 - (A), (B), (C) and (D)

2023: 28 May Shift 1

The steps in the Process of Preparing Profit and Loss Appropriation account are :

(A) Transfer the net profit to the credit side of P & L Appropriation A/c

(B) Divide the Profit among partners in the Profit Sharing ratio

(D) Debit the P & L Appropriation A/c with all appropriations like partners salary etc.

(E) Credit the P & L Appropriation A/c with interest on drawing and deficiency on account of partner's guarantee of earnings to the firm.

Choose the correct answer from the options given below :

2025: 31 May Shift 1

Contents of the Partnership Deed does not include

2025: 31 May Shift 1

Saloni and Srishti are partners in a firm. Their capital accounts as on April 01, 2019 showed a balance of Rs. 2,00,000 and Rs. 3,00,000 respectively. On July 01, 2019 Saloni introduced additional capital of Rs. 50,000 and Srishti, Rs. 60,000. On October 01, 2019 Saloni withdrew Rs. 30,000, and on January 01, 2020 Srishti withdrew Rs. 15,000 from their capitals. Interest is allowed @ 8% p.a. Calculate interest payable on capital to Saloni during the financial year 2019–2020.

2026: 29 May Shift 1

Capital employed in a business is Rs. 1,00,000. The normal rate of return on this type of business carried out is 10%. The firm has earned profits of Rs. 30,000; Rs. 36,000 and Rs. 42,000 in the last three years. Using capitalisation of super profits method, calculate the value of the goodwill of the firm.

2022: 16 July Shift 2

Match the following with regard to partnership

List I	List II
A. When a new partner joins the partnership	I. Compulsory dissolution
B. When an existing partner leaves the partnership	II. Admission of a partner
C. When the business of firm becomes illegal	III. Prepared in the case of death of a partner
D. Executor's Account	IV. Retirement of a Partner

Choose the correct answer from the options given below:

2026: 31 May Shift 1

Which of the following statement is not true in case of fluctuating capital method under accounting for partnership?

Solution

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