Reconstitution of A Partnership Firm Retirement Death of A Partner

Reconstitution Of A Partnership Firm Retirement
Death Of A Partner
EASY
1. Sales for the year ended amounted to Rs. 10,00,000. Sales included goods sold to Mr.A for Rs.
50,000 at a profit of 20% on cost.Such goods are still lying in the godown at the buyer's risk. Such
goods should be treated as part of :
A
Sales
B
Closing stock
C
Goods in transit
D
Sales return
Answer A
2. A, B, C were partners sharing profits in the proportion of 1/2, 1/3 and 1/6 respectively. On 31st
March 1997 their capital stood as follows:
A Rs. 4,00,000, B Rs. 3,00,000, C Rs. 2,50,000.
A sum of 1,20,000, also appeared as reserve fund in their balance sheet on this date. B retire on this
date when the goodwill of firm was valued at Rs. 1,80,000.
Profit and loss adjustment account prepared on that date without taking goodwill and reserve fund
into consideration showed a net profit of Rs. 28,500.
The net amount payable to B will be :
A
Rs. 3,82,500
B
Rs. 4,09,500
C
Rs. 3,63,800
D
Rs. 4,04,000
Answer B
3. Which of the following formula is used to calculate goodwill under super profit method?
A
Goodwill = Weighted average profit x No. of year purchase.
B
Goodwill = Average profit x No. of year purchase.
C
Goodwill = Super profit x No. of year purchases.
D
Any of the above.
Answer C
4. X,Y and Z are partners in a firm sharing profits in 2:2:1 ratio. The fixed capitals of the partners
were: X Rs.5,00,000;Y Rs.5,00,000 and Rs.2,50,000 respectively. The Partnership Deed provides
that interest on capital is to be allowed @ 10% p.a. Z is to be allowed a salary of Rs.2,000 per
month. The profit of the firm for the year ended 31st March, 2018 after debiting Z's salary was
Rs.4,00,000
Prepare Profit and Loss Appropriation. Account.
Answer Profit and Loss Appropriation a/c
(for the year ended 31st March,2018)
Dr. Cr.
Particulars Amount Particulars Amount
To Interest on Capital:
-X 50000 By Profit and Loss a/c
400000
-Y 50000 (after charging Z's salary)
-Z 25000
To Profit transferred to:
- X's Capital a/c 110000

- Y's Capital a/c 110000
- Z's Capital a/c 55000
400000 400000
5. The capital of A and B sharing profits and losses equally are Rs.90,000 and Rs.30,000
respectively.They value the goodwill of the firm at Rs.80,000, which was not recorded in the
books.If goodwill is to be raised now, by what amount each partner's capital amount will be
debited?
A
Rs. 20,000 and Rs.60,000
B
Rs. 40,000 and Rs.40,000
C
Rs. 60,000 and Rs.20,000
D
None of these
Answer D
6. Which of the following formula is used to calculate goodwill under weighted average profit
method ?
A
Goodwill = Weighted average profit x no. of year purchase.
B
Goodwill = Average profit x no. of year purchase.
C
Goodwill = Super profit x no. of year purchase.
D
Goodwill = Super profit x Annuity factor.
Answer A
7. The profits for 1998-99 are Rs.2,000; for 1999-2000 Rs.26,100 and for 2000-01 Rs.31,200. Closing
stock for 1999-2000 and 2000-01 includes the defective items of Rs. 2,200 and Rs. 6,200
respectively which were considered as having market value NIL.Calculate the goodwill on two
years' purchase of average profit.
A
Rs.47,400
B
Rs.35,400
C
Rs.27,400
D
Rs.34,600
Answer B
8. In which of the following cases, the need for the valuation of goodwill in a firm may arise?
A
Admission of new partner.
B
While changing profit sharing ratio.
C
Retirement or death of a partner.
D
All of above.
Answer D
9. If vendors are issued fully paid shares of Rs.80,000 in the consideration of net assets of
Rs.60,000, then the balance of Rs.20,000 will be _____________________.
A
Debited to profit and loss account
B
Debited to goodwill account
C
Credited to capital reserve account
D
Credited of share premium account
Answer B
10. Which of the following formula is used to calculate goodwill under simple average profit
method?
A
Goodwill = Weighted average profit x No. of year purchase.
B
Goodwill = Average profit x No. of year purchase.
C
Goodwill = Super profit x No. of year purchases.
D
Answer B
11. A,B and C are partners sharing profits and losses in the ratio of 2:2:1 respectively. A is entitled to
a commission of 10% on the net profit. Net profit for the year is Rs. 1,10,000. Determine the
amount of commission payable to A.
Answer Net Profit before charging commission= 110000
Rate of commission= 10%
A's commission = [Rate/100]* Net profit
= 110000 * 10/100
= 11000
12. What is meant by Purchased Goodwill?

Answer Purchased Goodwill arises when one business buys another business and the purchase
consideration paid is more than the value of net tangible assets received. It can never exist in a new
business except by purchase. The purchased goodwill is shown on the assets side of the balance
sheet. AS-10 provides that only purchased goodwill should be shown in the books of accounts. Price
paid for the goodwill purchased depends upon the purchaser's expectations of future profits.
13. The average profit earned by a firm is Rs.7,50,000 which includes overvaluation of stock of Rs.
30,000 of an average basis. The capital invested in the business Rs. 42,00,000 and the normal
rate of return is 15%. Calculate goodwill of the firm on the basis of 3 times the super profit.
Answer Step 1: Calculation of Normal Profit:
Normal Profit= Capital Employed * [Normal rate of return/100]
= 4200000 * [15/100]
= 630000
Step 2: Calculation of Average Profit:

Average Profit= Profit- Overvaluation of Stock
= 750000- 30000
= 720000
Step 3: Calculation of Super Profit:

Super Profit= Average Profit- Normal Profit
= 720000-630000
= 90000
Step 4: Calculation of Goodwill:

Goodwill = Super profit * No. of years purchase
Goodwill= 90000* 3
= 270000
14. From the following information, calculate value of goodwill of the firm by applying Capitalisation
Method. Total capital of the firm is Rs.16,00,000.
Normal rate of return 10%. Profit for the year is Rs. 2,00,000.
Answer Step 1: Calculation of Capitalised Value of Profit:
Capitalised Value of profit= [ Profit * 100]/ Normal Rate Of Return
= [200000*100]/10
= 2000000
Step 2: Calculation of Total Capital:
Total Capital= 1600000

Goodwill= Capitalised Value of Profit- Total Capital
= 2000000-1600000
= 400000
15. What is meant by Self-generated Goodwill?

Answer Self-generated or Inherent Goodwill is the value of business in excess of the fair value of it's
net tangible assets. It arises over a period of time due to the good reputation of the firm. A cost
cannot be placed on this type of goodwill. It is never recorded in the books of accounts. The
valuation of this type of goodwill depends entirely on the judgement of the valuer.
16. If the incoming partner is to bring in premium for goodwill in cash and also balance exist, in the
goodwill Account, then this Goodwill Account is written off among the old partners in _________
.
A
the new profit-sharing ratio
B
the old profit-sharing ratio
C
the sacrifice ratio
D
none of the above
Answer B
17. How does the market situation affect the value of Goodwill of a firm?
Answer Market Situation is very important in the valuation of goodwill of a firm. Goodwill, in the
economic terms, is the capacity of a firm to earn in future based on it's past performance. If the
market situation implies that there is no future for the firm, valuation of goodwill is useless.
When the risk prevalent in the market is low, the goodwill created by the firm is high.
18. Why Goodwill considered as an intangible asset but not a fictitious asset?
Answer Goodwill is an intangible asset, which means that it cannot be seen or felt but has some
realisable value. They are not recorded in the books of accounts.
Whereas, Fictitious assets are assets that are made up and do have any realisable value when sold.
They are, however, recorded in the books of accounts.
19. How does location affect the Goodwill of a business?

Answer The place or locality where the business is situated affected the Goodwill of a business. If the
business is centrally located or located in a very prominent place where it can attract more
customers, the turnover of the firm increases and hence, its goodwill. Location of the business
should always be taken into consideration while ascertaining the value of goodwill of a firm.
20. Z is admitted to a firm for 1/4th share in the profit, for which he brings in Rs.10,000 towards
premium for goodwill. It will be taken by the old partners in ____________ .
A
The old profit-sharing ratio
B
The new profit-sharing ratio
C
The sacrificing ratio
D
None of the above
Answer C
21. When the General Reserve is distributed, is the partner's Capital Account debited or credited?
Answer Sometimes a firm may have undistributed reserves and profits yet to be transferred to the
partner's capital accounts, for example, general reserve. At the time of admission of a partner, these
reserves are distributed to the partner's capital accounts in their old profit sharing ratio. The
partner's capital account is credited with his share of the reserve.
The accounting entry is:
General Reserve a/c..... Dr.
To Partner's Capital a/c
22. If the new partner brings in his share of goodwill in cash and if goodwill also appears in books,
how is existing amount of goodwill dealt with?
Answer A new partner may bring in his share of premium for goodwill to compensate for the loss of
share of profit of the partners. This premium is distributed among the partners in the sacrificing
ratio. However, if goodwill already appears in the books, this existing goodwill is distributed among
the partners in their old profit sharing ratio.
The accounting entry for distribution of existing goodwill:
Partners' Capital a/c... Dr.
To Goodwill a/c
23. Why do we distribute reserves, accumulated profits and losses among the old partners?
Answer Sometimes the firm may have accumulated profits and reserves in the form of General
Reserve, Reserve Fund and/or Profit and Loss account. These have not yet been transferred to the
partner's capitals accounts. The new partner is not entitled to have a share of these accumulated
profits, since he was not a part of the firm when these profits were earned. These profits are only
transferred to the old partner's capitals accounts in their old profit sharing ratio.
Similarly, if there is an accumulated loss, it is transferred to the debit side of the partner's capitals
accounts in their old profit sharing ratio.
24. State the reason of contributing for goodwill by a new partner at the time of his admission.
Answer If the partnership firm is a well established firm and earns profits greater than the normal
rate of return on it's capital, the new partner is required to contribute some additional amount
known as the Goodwill. This is done to compensate the existing partners for their loss in the super
normal profits of the firm due to the admission of the new partner.
25. When capitals are made proportionate to profit-sharing ratio and excess capital is paid back to a
partner, is his Capital Account debited or credited?
Answer When capitals are made proportionate to their profit sharing ratios, it is agreed that the
capitals contributed by each partner should be equal to his share in profit. Any partner having excess
capital, after such adjustment, withdraws the excess capital. Hence, the partner's capital account is
debited with the amount of withdrawal.

Partner's capital a/c... Dr.
To Cash a/c
26. Under what circumstances will the premium for goodwill paid by the incoming partner not be
recorded in the books of account?
Answer The premium for goodwill is an additional amount paid by the new partner to compensate
to the old partners for the part of profit taken up by him. When this amount of premium is paid
privately by the incoming partner to the old partner's, no entry is recorded in the books of accounts.
27. Why should a new partner contribute for goodwill on admission?

Answer At the time of admission of a partner, the incoming partner brings in an extra amount to
compensate the existing partners for their loss in the super profits because of the addition of his
share in the profits of the firm. This additional amount is termed as the premium for goodwill and is
distributed among the old partners in the sacrificing ratio.
28. State the need for treatment of goodwill on admission of a partner.

Answer Goodwill is the result of the past efforts of the existing partners. When a new partner is
admitted, he shares into these profits. The old partners need to be compensated for their loss in
share. Hence, the new partner brings in some amount known as the goodwill to compensate for this
loss. This is why goodwill needs to be revalued and give treatment during admission of a partner.
29. When existing Goodwill is written off, is the partner's Capital Account debited or credited?
Answer When a new partner is admitted, goodwill of the business is valued afresh. For this, the
goodwill that already appears in the books of accounts is written off and is transferred to the old
partner's capitals accounts in their old profit sharing ratio. The old partner's capital accounts are
debited with their share of goodwill.
Partner's capital a/c.... Dr.
To Goodwill a/c
30. State whether Revaluation Account is debited or credited to record an unrecorded asset.
Answer The revaluation account is credited with the amount of the unrecorded asset at the time of
admission of a partner. Unrecorded assets are those assets which do not appear in the books but are
present in the business. These unrecorded assets are a gain to the firm and hence, are credited to
the revaluation account.
Asset a/c... (unrecorded amount) Dr.
To Revaluation a/c
31. A,B and C are partners having capitals of Rs.3,00,000,Rs.2,00,000 and Rs.1,00,000. They admit D
as a partner for 1/5Th share on 1st April,2018. On this day, the firm has reserve of Rs.60,000. A
and B demand that reserve should be shared in proportion of capital whereas C is of the opinion
that it should be shared equally as they do not have partnership deed. A and B agree to C′s
viewpoint.
What argument must have been put by C that convinced both A and B?
Answer C is correct. When there is no partnership agreement, reserves are shared equally among
the partners. According to Section 24 of the Partnership Act, 1890, if there is no partnership deed in
place, all profits and reserves are to be shared equally among the partners.
32. Mohan and Sohan were partners in a firm sharing profits and losses in the ratio of 3:2. they
admitted Ram for 1/4th share on 1st April,2018. It was agreed that goodwill of the firm will be
valued at 3 years purchase of the average profit of last 4 years which were Rs.50,000 for 2014-
15, Rs.60,000 for 2015-16, Rs.90,000 for 2016-17 and Rs.70,000 for 2017-18. Ram did not bring
his share of goodwill premium in cash. Record the necessary Journal entries in the books of the
firm on Ram's admission when:
(a) Goodwill appears in the books at Rs.2,02,500
(b) Goodwill appears in the books at Rs.2,05,500.
Answer Calculation of amount of goodwill:
Average profit= [50000+60000+90000+70000]/4
= 67500
Goodwill of the firm= 67500 * 3
= 202500
Ram's share of goodwill= 1/4 * 202500
= 50625
(a) Goodwill appears in the books at 202500

Since the difference between goodwill that already appears in the books and goodwill calculated is
zero, no entry is passed.
(b) Goodwill appears in the books at 205500

Difference= 205500- 202500
= 3000
JOURNAL
Mohan's Capital a/c.... Dr. 1800
Sohan's Capital a/c..... Dr. 1200
To Goodwill a/c 3000
(Being goodwill brought down to its agreed value)
33. X and Y are partners sharing profits and losses equally. They admit Z as partner for 1/3Rd share
which he takes from Y. Z brings Rs.50,000 as his share of goodwill. X is of the opinion that
goodwill brought by Z should be shared equally whereas Y is of the opinion that Rs.50,000
should be credited to his capital X finally agrees to Y′ s view.
What argument must been given by Y that made X agree?
Answer Premium for goodwill is the additional amount brought in by the incoming partner to
compensate the existing partners for their sacrifice in the profits of the firm. Since, Z acquires his
entire share from Y, only Y is to be compensated for the loss and it is not to be distributed equally
among the partners. Hence, the entire amount of premium is credited to Y's Capital account.
34. X,Y and Z are partner sharing profits in the ratio of 5:3:2. If Y retires then the new ratio will
be______.
A
5:2
B
5:3
C
3:2
D
2:5
Answer A
35. A,B and C were partners sharing profits and losses in the ratio of 6:3:1. They decide to take D
into partnership with effect from 1st April,2018. The new profit-sharing ratio between A,B,C and
D will be 3:3:3:1. They also decided to record the effect of the following without affecting their
book values, by passing a single adjustment entry:
Book Value (Rs.)
General Reserve 1,50,000
Contingency Reserve 60,000
Profit and Loss A/c(Cr.) 90,000
Advertisement Suspense A/c (Dr.) 1,20,000
Pass the necessary single adjustment entry, through the partner's Current Account.
Answer JOURNAL
1. General reserve a/c..... Dr. 150000
Contingency reserve a/c.... Dr. 60000
Profit and loss a/c... Dr. 90000
To Advertisement suspense a/c 120000
To A's Current a/c 108000
To B's Current a/c 54000
To C's Current a/c 18000
(Being adjustment of accumulated reserves through the partner's current accounts)
36. 'Samta Limited invited applications for issuing 6,750 equity shares of Rs10 each. The amount was
payable as follows : On application - Rs3 per share
On allotment - Rs5 per share
On first and final call - Rs2 per share
The issue was fully subscribed. Subhash applied for 250 shares and paid his entire share money with
application. Moti applied for 175 shares and paid allotment money also with application. The
amount received with applications was :
A
Rs16,750
B
Rs16,000
C
Rs19,250
D
Rs22,875
Answer D
37. X and Y are partners in a firm, sharing profits and losses in the ratio of 3:2. Z is admitted as
partner with 1/4 share in profit. Z acquires his share from X and Y in the ratio of 2:1.
Calculate the new profit sharing ratio.
Answer X's old share= 3/5
Y's old share= 2/5
Z is admitted for 1/4th share
Sacrificing ratio is 2:1
Z acquired 2/3 * 1/4 = 2/12 from X
Z acquired 1/3 * 1/4 = 1/12 from Y
Hence,
X's new ratio= 3/5-2/12
= 26/60
Y's new ratio= 2/5-1/12
= 19/60
Z's share= 15/60
New Profit sharing ratio= 26:19:15
38. X and Y are partners with capitals of Rs.50,000 each. They admit Z as a partner with 1/4Th share
in the profits of the firm. Z brings in Rs.80,000 as his share of capital. The Profit and Loss Account
showed a credit balance of Rs.40,000 as on date of admission of Z.
Give necessary Journal entries to record the goodwill.
Answer Working Note:
Calculation of hidden goodwill:
Total Capital of the firm after admission= 50000+50000+80000+40000
= 220000
Total capital of the firm based on Z's capital= 80000 * 4/1
= 320000
Hidden goodwill= 320000-220000= 100000
Z's share of Goodwill= 100000 * 1/4= 25000
JOURNAL
1. Cash a/c..... Dr. 80000
To Z's Capital a/c 80000
(Being capital brought in by Z)
2. Z's Capital a/c... Dr. 25000
To X's Capital a/c 12500
To Y's Capital a/c 12500
(Being Z's share of goodwill distributed among the partners in the ratio of 1:1)
39. X and Y are partners sharing profits and losses in the ratio of 3:2. They admit Z into partnership.
X gives 1/3 Rd of his share, while Y gives 1/10Th from his share to Z. Calculate new profit-sharing
and sacrificing ratio.
Answer X's old share= 3/5
Y's old share= 2/5
Z is admitted as a partner.
X's sacrifice= 3/5 * 1/3

= 3/15
Y's sacrifice= 1/10
Therefore, Z's share= 3/15 + 1/10
= 9/30
X's new share= 3/5- 3/15

= 6/15
Y's new share= 2/5- 1/10
= 3/10
New profit sharing ratio= 4:3:3
Sacrificing ratio= 2:1
40. A and B, carrying on business in partnership and sharing profits and losses in the ratio of 3:2,
require a partner, when their Balance Sheet stood as:
Liabilities (Rs.) Assets (Rs.)
Creditors
A's Capital 51,450
B's Capital 36,750 11,800
88,200 Cash
Stock
Debtors
Furniture
Machinery 1,500
28,000
19,500
2,500
48,500
1,00,000 1,00,000
They admit C into partnership and give him 1/8th share in the future profits on the following terms:
(a) Goodwill of the firm be valued at twice the average of the last three years profits which
amounted to Rs.21,000;Rs.24,000 and Rs.25,560.
(b) C is to bring in cash for the amount of his share of goodwill.
(c) C is to bring in cash Rs.15,000 as his capital.
Pass Journal entries recording these transactions, draw out the Balance sheet of the new firm and
state new profit sharing ratio.
Answer
41. What are the assumptions in calculation of goodwill by average profit method ?
Answer The average profit method is based on the assumption that a new business will not be able
to earn any profits during the first few years of its operations. The person who purchases a running
business must pay in the form of goodwill a sum which is equal to the profits he is likely to receive
for the first few years.
42. What is the role of efficiency of management in business and its impact on value of Goodwill?
Answer A well-managed concern usually enjoys the advantage of high productivity and cost-
efficiency. A firm may increase its profits through properly planned production, distribution, and
services. This increases the value of goodwill of the firm.
43. What are the assumptions in calculation of goodwill by super profit method?
Answer Super profit method for calculating goodwill is based on assumption that value of goodwill
lie in excess profit over normal profit, It is desirable to value, goodwill on the basis of the excess
profits and not the actual profits.
44. How to calculate goodwill by average profit method?

Answer Under the average profit method, goodwill is calculated by multiplying the past average
profits by the number of years during which the anticipated profits are expected to accrue
45. What are the various matters that need adjustments at the time of retirement of partners?
Answer The following are the matters that need adjustments at the time of retirement of partners:
1. Calculation of new gaining ratio of all the remaining partners of the firm;
2. Calculation of new ratio of the remaining partners of the firm;
3. Calculation of goodwill of the new firm and its accounting treatment;
4. Revaluation of assets and liabilities of the new firm;
5. Distribution of accumulated profits and losses and reserves among all the partners (including the
retiring partner);
6. Treatment of Joint Life Policy;
7. Settlement of the amount due to the retiring partner;
8. Adjustment of capital accounts of the remaining partners in their new profit sharing ratio.
46. What do you mean by joint life policy?

Answer A Joint life policy is an assurance policy taken on the joint lives of the partners. At the time of
death of a partner, the firm becomes liable to pay the executors of the deceased partner. Payment
of such a heavy amount out of the firm's resources is likely to affect a firm's finances very adversely.
Joint life policy help firm to tackle such issue. The premium for such a policy is paid by the firm.
47. How is the value of goodwill affected by the nature of business?

Answer A firm that produces high-value-added products or having a stable demand is able to earn
more profits and therefore has more goodwill. A firm with a high debt will have to pay more interest
from a profit of the firm and naturally goodwill will be less. Hence, the goodwill of a is affected by
the nature of business.
ANSWER
1. Factor(s) affecting the value of goodwill is/are _____________.
A
Quality
B
Location or site
C
Competition
D
All the above
Answer D
2. The formula of average profit method is __________.

A
Total Profits/ No.of years
B
Super Profit − Normal Profit
C
Super Profit × No. of years
D
Super profit/ Normal profit
Answer A
3. 'Dogs' is applicable in case of professional services like ______________.

A
Lawyers
B
Doctors
C
Traders
D
Both (A) and (B)
Answer D
4. _________ is calculated when a partner retires from the firm.

A
Sacrificing ratio
B
Gaining ratio
C
Profit sharing ratio
D
Either (A) or (C)
Answer B
5. Which method is useful when the actual profit is less than normal profit?
A
Super profit method
B
Capitalisation method
C
Average profit method
D
Premium method
Answer B
6. The formula of super profit is ____________.

A
Total profits/ No.of years
B
Capital employed × normal rate of return
C
Average profit − normal Profit
D
Super profit × no. of years of purchase
Answer C
7. Which of the following are true or false?a) A retiring partner will be held liable for the debts
incurred by the firm after his retirement.
b) He must give public notice to that effect
A
Both (A) and (B) are true
B
Both (A) and (B) are false
C
(A) is true, but (B) is false
D
(A) is false, but (B) is true
Answer D
8. Goodwill means ___________.

A
the attractive force which brings in customers
B
attachment of customer to a particular business
C
reputation of the firm
D
all of the above
Answer D
9. Liquidation expenses paid by the transferee company is debited to _________.

A
General reserve account
B
P/L account
C
Goodwill account
D
None of these
Answer C
10. The excess of purchase consideration over net assets of the transferor company acquired by the
transferee company should be recognized as ________ in purchase method.
A
capital reserve
B
general reserve
C
goodwill
D
P&L
Answer C
11. ________ may be defined as the value of the reputation of the firm.
A
Capital
B
Goodwill
C
Drawings
D
Assets
Answer B
12. During the reconstitution of partnership firm, _________ is valued.

A
Expenses
B
Incomes
C
Assets
D
Goodwill
Answer D
13. _______ is an intangible asset which arises on acquisition or is internally generated.

A
Copyrights
B
Goodwill
C
Trademarks
D
Patent
Answer B
14. Under which of the following methods of capitalization Goodwill = Capitalised Value of Firm(avg
profit) - NET Assets(capital employed).
A
Capitalisation of Super Profits Method
B
Capitalisation of NRR
C
Capitalisation of normal Profits Method
D
Capitalisation of Average Profits Method
Answer D
15. Under ___________ method Goodwill is valued at the agreed number of years purchase of the
average profits of the past few years.
A
Average Profit Method
B
Super Profit Method
C
Capitalization Method
D
None of Above
Answer A
16. If, average profit during last few years is Rs.100000, NRR is 10%. Ascertain the value of goodwill
by capitalisation of average profit method if total assets are Rs.1500000 and liabilities
Rs.680000.
A
Rs.1,00,000
B
Rs.1,80,000
C
Rs.1,10,000
D
Rs.1,05,000
Answer B
17. ________ may be defined as the value of the reputation of the firm.
A
Capital
B
Goodwill
C
Drawings
D
Assets
Answer B
18. Goodwill is a _______ asset but not fictitious asset.

A
Tangible
B
Intangible
C
Personal
D
Nominal
Answer B
19. Dog - Goodwill 1. Fugitive good will

b) Cat - Good will 2. Locality good will
c) Rat - Good will 3. Personal good will
A
1,2,3
B
3,2,1
C
2,1,3
D
1,3,2
Answer B
20. If normal profit is Rs.50000, average profit is Rs.75000 than calculate Goodwill for 2 years of
purchase under super profit method_______.
A
Rs.45000
B
Rs.50000
C
Rs.55000
D
Rs.48500
Answer B
21. On the death of a partner, the amount of joint life policy should be credited to the capital
account of _________.
A
remaining partners in the new profit ratio
B
all partners including the deceased partner in their old profit sharing ratio
C
neither the deceased partner nor the remaining partners
D
None of the Above
Answer B
22. Under which of the following method Goodwill account is raised in the books of accounts.
A
Premium Method
B
Revaluation Method
C
Realisation Method
D
None of above
Answer B
23. The _______ is paid to new partner if his share of profit as per the profit sharing ratio is less then
the guaranteed amount
A
minimum gaurantee amount
B
maximum gaurantee amount
C
less gaurantee amount
D
high gaurantee amount
Answer A
24. Which of the following method is followed when incoming partner brings his share of Goodwill
in cash___________.
A
Premium Method
B
Revaluation Method
C
Realisaton Method
D
None of Above
Answer A
25. Tom and Ban are partners in a Firm for 2 : 1 ratio.
They admitted Jay as new partner for 1/5 share. calculate new ratio ?
A
3:4:8
B
8:4:3
C
2:3:1
D
4:3:8
Answer B
26. A, B, C are partners in a firm sharing profits and losses in ratio 5:3:4. If Partner B dies than new
profit sharing ratio will be ______.
A
5:4
B
3:2
C
Equal
D
1:2
Answer A
27. A and B are partners in the ratio of 2 : 1. They admit C for 1/4 share who contributes Rs. 30,000
for his share of goodwill. The total value of the goodwill of the firm is _________.
A
Rs.30,000
B
Rs.90,000
C
Rs.1,20,000
D
Rs.1,50,000
Answer C
28. P, Q and R were partners in the ratio of 1/5, 1/3 and 7/15 respectively. R retires and his share
was taken up by P and Q in the ratio of 3 : 2. The new ratio of P and Q will be:
A
13:12
B
12:15
C
12:13
D
14:15
Answer C
29. C, M and Y are partners in the ratio of 1/2:2/5:1/10. What will be new ratio of the remaining
partners if C retires?
A
2:1
B
4:1
C
5:1
D
3:1
Answer B
30. Average profit method is based on the assumption that _____________.

A
no change in the overall situation of profits is expected in the future
B
the overall situation of profits is expected to be increasing in the future
C
the overall situation of profits is expected to be decreasing in the future
D
None of the Above
Answer A
31. The amount received from insurance company on the maturity of joint life policy is distributed
amongst the partners ___________.
A
in the profit sharing ratio
B
in the ratio of capitals of partners
C
Equally
D
None of the above
Answer A
32. Goodwill is regarded as an___________ asset.

A
intangible
B
tangible
C
fixed
D
capital
Answer A
33. On the admission of a new partner, the decrease in the value of assets is debited to:
A
Asset Account
B
Profit & Loss Adjustment Account
C
Old Partner's Capital Account
D
None of the above
Answer B
34. Following are the factors affecting goodwill except:

A
Nature of business
B
Efficiency of management
C
Technical know how
D
Location of the customers
Answer C
35. A partner may retire with the consent of:

A
Two partners
B
Ten partners
C
Majority of the partners
D
None of the above
Answer D
36. A, B and C are partners in a business sharing in the ratio of 5 : 3 : 2. B retires from the firm and
his share was taken up by A and C in the ratio of 2 : 1. What is the new profit sharing ratio of the
partners?
A
5:2
B
4:3
C
7:3
D
6:5
Answer C
37. A, B and C are partners sharing profits in the ratio of 4 : 3 : 2. Their capitals on 30th June, 2014
are A - Rs. 10,000, B - Rs. 6,000 and C - Rs. 2.000. The current account balances are, A- Rs. 8,000
(Cr.), B - Rs. 3,000 (Cr.) and C - Rs. 9,000 (Dr.). Loss arising from the insolvency of C will be shared
by A and B in:
A
equal ratio
B
the ratio of 4:3
C
the ratio of 5 : 3
D
the ratio of 2 :1
Answer C
38. A, B and C are partners sharing profits in the ratio of 3 : 2 : 3, their capitals on 30th June, 2014
are A Rs. 10,000, B Rs. 5,000 and C Rs. 6,000 (Dr.). C becomes insolvent and loss due to his
insolvency will be shared by A and B in _____________
A
equal ratio.
B
the ratio of 3 : 2.
C
the ratio of 2 : 1.
D
the ratio of 1 : 2.
Answer C
39. X and Y are partners in a firm sharing profits and losses in the ratio of 3 : 2. They admit Z as a
partner with 1/4th share of profit. Z acquires his share from X and Y in the ratio of 2 : 1. Z's share
of goodwill is calculated at Rs. 6000. Z is not in position to bring any amount for goodwill. What
additional entry will be required if after Z's admission, it is decided that the goodwill account
should not appear in the Balance Sheet of new firm ?
A
X's capital a/c Dr. 10,400
Y's capital a/c Dr. 7,600
Z's capital a/c Dr. 6,000
To Goodwill a/c 24,000

B
Goodwill a/c Dr. 24,000
To X's capital a/c 10,400
To Y's capital a/c 7,600
To Z's capital a/c 6,000

C
X's capital a/c Dr. 10,400
Y's capital a/c Dr. 7,600
To Z's capital a/c 18,000

D
None of the above
Answer D
40. A and B are sharing profits and losses in the ratio of 4 :1. C is admitted as a new partner for 1/3rd
share of profits for which he pays Rs. 30,000 as goodwill. If A and B agree to share future profits
equally, then the amount of goodwill to be credited to A would be :
A
Rs. 30,000
B
Rs. 90,000
C
Rs. 48,000
D
Rs. 42,000
Answer D
41. The _______ of actual profits over the normal profits is termed as super profits.
A
shortage
B
excess
C
minimum
D
maximum
Answer B
42. Accumulated profits are transferred to capital account in ______ratio.

A
old profit sharing ratio
B
new profit sharing ratio
C
sacrifice ratio
D
gain ratio
Answer A
43. Accumulated profits are distributed among the partners by transferring it to their
_________account.
A
Capital
B
Drawing
C
Loan
D
Salary
Answer A
44. Who is entitled to have share in accumulated profits?

A
New partner
B
Employee
C
Old partner
D
Creditor
Answer C
45. Under average profits method, goodwill is valued at agreed number of ________ purchase of
the average profits of the past few years.
A
months
B
years
C
days
D
both a and c
Answer B
46. Accumulated Profits are transferred to ________________.

A
General reserve
B
Profit & Loss A/c
C
Capital balance
D
Drawing A/c
Answer A
47. The capitalised value attached to the differential profit capacity of a business is called
_________.
A
asset
B
goodwill
C
trademark
D
copyright
Answer B
48. The value of the reputation of a firm in respect of the profits expected in future over and above
the normal profits is ________.
A
goodwill
B
patent
C
copyrights
D
trademark
Answer A
49. Normal Profit = ________________

A
Normal Rate of Return/100
B
Capital Employed/100
C
Capital Employed X Normal Rate of Return/100
D
Super Profit/100
Answer C
50. what are accumulated profits ?

A
Profits not transferred to profit & loss
B
Profits not transferred to Reserve
C
Profits not transferred to capital accounts
D
Profits not transferred to cash accounts
Answer C
51. Money value of the reputation of business is known as ______.

A
Copyright
B
Goodwill
C
Patents
D
Trademark
Answer B
52. Interest on capital of partner is a _________.

A
Loss to business
B
Profit to business
C
Loss to partners
D
Loss to tax department
Answer A
53. Give journal entry of:

General reserve, transferred to partners capital accounts:
A
partner's capital A/c Dr.
To General Reserve a/c

B
General Reserve A/c Dr.
To partner's capital a/c

C
General Reserve A/c Dr.
To cash a/c
D
cash a/c Dr.
To General Reserve A/c

Answer B
54. A partner may retire from the firm ________.

A
if there is an agreement to this effect
B
if all partner consent to his retirement
C
by notice of a partner in case of a partnership at will
D
all of the above
Answer D
55. Monetary value of business reputation is called _______.
A
Liability
B
Goodwill
C
Premises
D
Bank balance
Answer B
56. At time of admission overstated asset is transferred to _______account.

A
Credit side of capital account
B
Debit side of capital account
C
credit side of revaluation account
D
none of the above
Answer D
57. General reserve, transferred to partners capital accounts in ___ ratio.

A
new
B
old
C
sacrifice
D
gain
Answer B
58. P and Q are two partners sharing profit and loss equally. P draws Rs. 2,000 at the end of each
month for 6 months whereas Q draws Rs. 4,000 at the beginning of each month for six months.
Assuming that interest on drawing is to be charged @ 5% p.a interest on drawing of Q will be
_____.
A
Rs. 350
B
Rs. 380
C
Rs. 410
D
Rs. 301
Answer A
59. A new partner, along with other partners get ____________.
A
right to share future profit of the firm
B
right to share future assets of the firm
C
both (a) and (b)
D
either (a) or (b)
Answer C
60. A retiring partner is liable for all acts of the firm __________.
A
for all acts of the firm.
B
for all acts of the firm upto the date of his retirement.
C
ceases to liable for all past and present acts.
D
past, present and future acts of the firm
Answer B
61. On admission of A, a new partner, the value of closing stock was brought down by Rs.6,500. The
revaluation a/c will be ______.
A
Debited by Rs. 6000
B
Debited by Rs. 6500
C
Debited by Rs. 650
D
Debited by Rs. 655
Answer B
62. On retirement of a partner, the existing balance of general reserve and accumulated profit is
transferred to all the partners capital a/c in the ____________.
A
Gaining ratio
B
Sacrificing ratio
C
Old profit sharing ratio
D
New profit sharing ratio
Answer C
63. To which account is accumulated balances of profit and loss account and general reserve
account are transferred at the time of admission of a partner?
A
Partners current capital A/c
B
Partners fixed capital A/c
C
Revaluation A/c
D
Profit and loss adjustment A/c
Answer A
64. Interest allowed on the capital of partner is charged to ________.

A
profit and loss A.c
B
profit and loss appropriation A/c
C
profit and loss adjustment
D
revaluation A/c
Answer B
65. To ascertain profit or loss on retirement / death of a partner _____________ is prepared.

A
realization a/c
B
profit and loss a/c
C
revaluation a/c
D
profit and loss adjustment a/c
Answer C
66. How are unrecorded assets treated at the time of retirements of partners?
A
Debit to Revaluation A/c
B
Credited to Revaluation A/c
C
Credit to partners Capital A/c
D
Credited to capital A/c of retiring partners only
Answer B
67. Increase in liability at the time of retirement of a partner is _________.
A
credited to revaluation A/c
B
debited to revaluation A/c
C
debited to profit and loss A/c
D
debited to goodwill A/c
Answer B
68. When a partner retires, his share of profit is __________.

A
shared by other partner(s).
B
given to his legal successors.
C
vested in the partner.
D
vests with the official liquidator.
Answer A
69. On death of a partner, the representative of the deceased partner are entitled to share profit
from _________.
A
beginning of the financial year upto the date of death.
B
from date of death to the date of finalization of A/c.
C
for the full year.
D
for six month.
Answer A
70. ___________ account is opened for revaluation of assets and liabilities at the time of admission
of a partner into a firm.
A
Profit and loss A/c
B
Revaluation A/c
C
Realization A/c
D
Profit and loss appropriation A/c
Answer B
71. P, Q and R are three partners in a partnership firm X retirement stock, Sunday debtors and
provision for bad debts stand in the books of A/c at Rs. 50,000,Rs.45000 and Rs.4500
respectively. The partners decided to revalue assets as under. Stock-in-trade to be reduced to
90%, provision for bad debts to be brought to 15% of Sundry debtors. The entry for revaluation
of stock-in-trade will be ________.
A
Revaluations A/c Dr. Rs.5000,Stock in trade credit by Rs.5000.
B
Profit and loss A/c Dr. Rs.5000,Stock in trade credit by Rs.5000
C
Partners Capital A/c Rs.5000 to revaluation A/c Rs.5000
D
Revaluation A/c Rs.45000, stock-in-trade Cr. Rs.45000.
Answer A
72. Profit or loss on revaluation of assets and liabilities is transferred to __________.

A
capital a/c of a new partner
B
capital a/c of all partner
C
capital a/c of old partner
D
capital a/c of senior partner
Answer C
73. A,B, C and D are four partners in a firm sharing profits and loss in the ratio of 18:15:18:3, D
retires from the firm and his share of profit is purchased by the remaining partners A,B and C as
1/54,1/54 and 1/54.
What is the gaining ratio remaining partners?
A
1:1:1
B
3:9:1
C
1:9:3
D
3:1:9
Answer A
74. Profit or loss on revaluation of assets and liabilities is distributed in the __________ ratio.
A
Gaining
B
Sacrificing
C
Old profit sharing
D
New profit sharing
Answer C
75. Decreased in liability at the time of retirement of a partner is _________.

A
debited to revaluation A/c.
B
credited to revaluation A/c.
C
debited to profit and loss A/c.
D
debited to goodwill A/c.
Answer A
76. Decrease in assets at the time if retirement of a partner is ________.

A
credited to revaluation A/c.
B
debited to revaluation A/c.
C
D
Answer B
77. Gain Ratio is _______.

A
old profit sharing ratio - new profit sharing ratio
B
C
D
new profit sharing ratio - old profit sharing ratio
Answer D
78. X, Y, and Z are three partners. On the retirement of X assets and liabilities are revalued as under
provision for doubtful debts reduced by Rs.1250, stock in trade increased by Rs.550, Building in
increased by rs 4500. The remaining partner decides to re-state the assets and liabilities at the
old book value after the retirement of X.The revaluation would be given effect by ___________.
A
Y a/c Dr.,Z a/c Dr (each) Rs.1050,Credit X Rs.2100
B
Y a/c Dr,Z a/c Dr (each) Rs.1400,Credit X Rs.2800
C
D
Answer A
79. Retirement /death of a partner leads to ____________.

A
Gain in profit sharing ratio of remaining partners
B
Loss in profit sharing ratio of remaining partners
C
No change in profit sharing ratio of remaining partners
D
None of the above
Answer A
80. Increase in any asset at the time of retirement of a partner is ______________.

A
credited to revaluation A.c.
B
debited to revaluation A/c .
C
D
Answer A
81. Upon a admission of Champak Lal in a partnership firm as a new partner for 1/4th share of
profit, the goodwill of the firm is valued at Rs.40,000. Goodwill to be brought in cash by
Champak will be ______.
A
Rs.40,000
B
Rs.10,000
C
Rs.30,000
D
Rs.20,000
Answer B
82. As per AS 26 only _____will be recorded in books of account .

A
hidden goodwill
B
full goodwill
C
purchased goodwill
D
all of the above
Answer C
83. Which of these is not found in case of retirement /death of a partner?

A
Revaluation A/c
B
Realization of assets
C
Distribution of goodwill
D
Gaining ratio
Answer B
84. Which of the following is the odd one?

A
General reserve A/c
B
Profit and Loss A/c
C
Dividend equalization reserve A/c
D
Goodwill A/c
Answer D
85. As per super profit method goodwill = ____________.

A
Actual profit multiplied by No. of years of purchase
B
Normal profit multiplied by No. of years of purchase
C
Maintainable profit multiplied by No. of years of purchase.
D
Super profit multiplied by No. of years of purchase.
Answer D
86. Which of these is not found in case of retirement/death of partner?

A
Sacrificing ratio
B
Raising goodwill
C
Distribution of accumulated profit and reserves and surplus
D
Payment to the legal representative
Answer A
87. X,Y and Z are three partners in a firm. Y died on 1st January.The firm had taken a life policy of
Rs.18,000 at an annual premium of Rs.700. On the date of death of Y the JLP appears a Rs 1800.
The Policy was duly received. How the profit on JLP will be distributed?
A
Dr. Cash Rs.10,000, Dr. XYZ Rs.3333.33, Cr. JLP Rs.20,000.
B
Dr. Cash Rs.20,000 Cr. JLP Rs.20,000.
C
Dr. JLP Rs.16,200, Cr. XYZ Rs.5400 each.
D
Dr. JLP Rs.18,000, Cr. profit and loss A/c Rs.8,000.
Answer C
88. X & Associates is a partnership firm, it intends to revalue its goodwill, average profit for the past
five years is Rs. 15,000 per annum and goodwill is being valued 5 years purchase of super profit.
What would be the value of the goodwill of the firm if normal profit of the firm is Rs.12,000?
A
Rs.15,000
B
Rs.30,000
C
Rs.20,000
D
Rs.25,000
Answer A
89. When goodwill is revalued at the time of admission of a partner, how goodwill is distributed
amongst the old partners?
A
Equally.
B
Capital ratio.
C
Sacrifice ratio.
D
New profit sharing ratio.
Answer C
90. Consequent upon admission of a new partner in a firm the value of the goodwill is valued at
Rs.60,000. But there exists a goodwill account in the balance sheet which stood at Rs.48,000
what would be treatment of goodwill at the time of admission of a new partner. If memorandum
revaluation method is followed, after admission of a new partner?
A
Rs.12,000 would be debited to all the partner's capital account in their new profit sharing ratio
B
Rs.60,000 would be debited to old partner's capital account in their old profit sharing ratio
C
Rs.48,000 would be debited to all the partner's capital account in their new profit sharing ratio
D
Rs.48,000 would be credited to all the partner's capital account in their new profit sharing ratio
Answer A
91. If the average profit is 15000 and normal profit is Rs.10,000 and goodwill is to be valued at 5
years purchase of super profit, what would be the goodwill of the firm
A
Rs.75,000
B
Rs.25,000
C
Rs.30,000
D
Rs.50,000
Answer B
92. Premium method of goodwill is generally used at the time of _____ of a partner.
A
retirement
B
expulsion
C
death
D
admission
Answer D
93. A partner has a right to have access to all the books of accounts etc., of the firm
____________________.
A
during the subsistence of the partnership
B
during die proceedings for the dissolution of the firm
C
after the dissolution of the firm
D
all the above
Answer D
94. A firm has a policy of valuing goodwill at 2 years purchase of average profit of last three
years.From the following details estimate the goodwill of the firm
Profit for the year 2006 Rs.20,000 which includes an insurance claim of Rs.40,000 received
Loss for the year 2007 Rs.80,000 includes VRS payment of Rs.110,000
Profit for the year 2008 Rs. 105,000 which includes profit on sale of fixed assets Rs.25,000
A
Rs.60,000
B
Rs.90,000
C
Rs.75,000
D
Rs.80,000
Answer A
95. Tick the correct statement

A
No public notice is required at the time of death of a partner
B
A firm is compulsory dissolved upon death of a partner
C
If no public notice is given estate of the deceased partner is liable for debts of the firm
D
A firm cannot carry on its business after the death of a partner
Answer A
96. Calculate the value of goodwill of the firm under annuity method.
Super profit Rs. 10,000
No. of years over which super profit is to be paid =5 years.
Rate of annuity 5% per annum.
A
Rs. 40,000
B
Rs. 45,000
C
Rs. 43,300
D
Rs. 41,000
Answer C
97. Match the following:

A B
1 Goodwill 1 Non-depreciable
2 Land 2 Non-cash expense
3 Called up 3 Intangible
4 Depreciation 4 Capital
A
(1, 4), (2,3), (3, 2), (4, 1)
B
(1, 2), (2,3), (3, 4), (4, 1)
C
(1, 4), (2, 2), (3,1), (4, 3)
D
(1,3), (2,1), (3,4), (4,2)
Answer D
98. ABC Associates is a partnership firm, it intents to revalue its goodwill, average profit for the past
five year are Rs.15,000 p.a, goodwill is being valued 3 years purchase of average profit. The
goodwill of the firm would be valued at
A
Rs.15,000
B
Rs.45,000
C
Rs.20,000
D
Rs.7,500
Answer B
99. ABC are three partners sharing profit and loss equally.The firm decides to give only 1/5th share
of profit to C in future due to his illness. on the date of change in the profit sharing ratio the
goodwill of the firm was valued Rs.6000. What entry would be made to give effect to this change
in the profit sharing ratio
A
A's Capital A/c Dr. Rs.2500, B's Capital A/c Dr. Rs.3500, C's Capital A/c Cr. Rs.6000
B
C
D
Answer C
100. Goodwill of the partnership business is the property of the _______.

A
Firm
B
Senior partner
C
Managing partner
D
none of these
Answer A
101. Which of the following statement is true?

A
Balance in share forfeited A/c is transferred to goodwill A/c
B
Shares of private company are not freely transferrable
C
Shares cannot be issued at a premium more than 20%
D
Debentures cannot be issued at discount
Answer B
102. In settling the accounts of the firm after dissolution, the goodwill of the firm can be sold
____________.
A
separately
B
along with other assets
C
Either (a) or (b)
D
cannot be sold
Answer C
103. When goodwill account is subsequently written off after admission of a new partner the
capital A/c of all the partners is debited in
A
B
C
Sacrificing ratio
D
Equally
Answer B
104. The majority rule is applicable when the partners are divided over _______.
A
ordinary business matter
B
fundamental matter
C
legal issues
D
all the three
Answer A
105. When the personal property of a partner is being used in the business of the firm, it ______.
A
is a question of fact to be determined with reference to the partner's intention whether it has
become the property of the firm
B
becomes the joint estate
C
remains an estate of the partner
D
is a question of law to be decided on legal principles
Answer A
106. Goodwill brought in by the incoming partner is shared by the old partners in _________
A
Old ratio
B
New ratio
C
Sacrificing ratio
D
Gaining ratio
Answer C
107. Which of the following is an example of real asset

A
Building A/c
B
Goodwill A/c
C
Patent A/c
D
Copyright A/c
Answer A
108. Premium method of valuation of goodwill is used when the _________

A
Incoming partner brings in his share of goodwill in cash
B
Incoming partner pays goodwill to the old partners privately
C
When goodwill brought in by the incoming partner is withdrawn by the old partners
D
When the partners decides to raise the goodwill at its full value.
Answer A
109. Excell Associates is a partnership firm, it intends to revalue its goodwill, average profits for
the past five years are Rs 25000 p.a. Goodwill is being valued 3 years purchase of average profit.
Goodwill of the firm will be valued at Rs
A
Rs 90,000
B
Rs 75000
C
Rs 80000
D
Rs 60000
Answer B
110. Goodwill is______________.

A
an intangible but fictitious asset
B
an intangible asset
C
a fictitious asset
D
a tangible and real asset
Answer B
111. New incoming partner pays his share of goodwill in cash and profit sharing ratio of old
partner is changed, Goodwill be distributed among old partners ____________.
A
At their old profit ratio
B
According to new ratio
C
According to sacrifice ratio
D
None of the above
Answer A
112. Death of a partner has the effect of _________.

A
dissolution of the firm
B
continuance of the business of the firm
C
his legal heir joining the firm
D
shutting down the business for 15 days
Answer B
113. X and Y are partners sharing profits in the ratio of 3 : 1. They admit Z as a partner who paid
Rs.40,000 as Goodwill, the new profit sharing ratio being 2: 1: 1 among X, Y and Z respectively.
The amount of goodwill will be credited to __________.
A
X and Y as Rs.30,000 and Rs.10,000 respectively
B
X only
C
Y only
D
None of the above
Answer B
114. Amount spent on acquiring goodwill is a ____________.

A
Revenue expenditure
B
Capital expenditure
C
Deferred Revenue expenditure
D
Loss
Answer B
115. Which of these is not a method of treatment of goodwill?

A
Sinking fund method
B
Revaluation method
C
Premium method
D
Memorandum revaluation method
Answer A
116. Premium method of goodwill valuation is generally followed in the event of

A
Retirement of a partner
B
Death of a partner
C
Admission of a partner
D
Dissolution of the firm
Answer C
117. Which of these would reduce the net profit of a partnership firm
A
Charging interest on drawing of the partners
B
Allowing interest on capital of the partners
C
Distribution of goodwill
D
Changing profit sharing ratio
Answer B
118. A and B are two partners sharing profit and loss in the ratio of 2:3.C is admitted as a third
partner for which he brings Rs. 6,000 in cash as his share of goodwill, the partners decided to
share profit and loss in the ratio of 4:6:6 in future. Find the sacrificing ratio.
A
1:2
B
2:1
C
2:3
D
3:2
Answer C
119. Which of these can be described as the sum of those intangible attributes or benefits
enjoyed by the enterprise which contributes to its success.
A
Research and Development
B
Goodwill
C
Deferred revenue expenditure
D
Intangible Assets
Answer B
120. Sacrificing ratio is used at the time of .. of a partner for distribution of goodwill
A
Retirement
B
Death
C
Admission
D
Expulsion
Answer C
121. X and Y are sharing profits and losses in the ratio of 3 :2. Z is admitted with 1/5th share in
profits of the firm which he gets from X. Now the new profit sharing ratio among X, Y and Z will
be _________.
A
12:8:5
B
8:12:5
C
2:2:1
D
2:2:2
Answer C
122. X and Y share profits and losses in the ratio of 4 : 3. They admit Z in the firm with 3/7 share
which he gets 2/7 from X and 1/7 from Y. The new profit sharing ratio will be:
A
7:3:3
B
2:2:3
C
5:2:3
D
2:3:3
Answer B
123. X and Y are sharing profits in the ratio of 2: 1. They admitted Z into the firm with 1/4 shares
in profits for which he brings 15,000 as his share of capital. The partners decide to have their
capitals according to the new profit sharing ratio. As a result, the adjusted capital of Y will be:
A
10,000
B
15,000
C
16,000
D
24,000
Answer B
124. A and B are partners sharing profits and losses in the ratio of 3 : 1. They have agreed to
admit C into the partnership firm. C is given 1/4th share of future profits which he acquires in
the ratio of 2: 1 from A and B. The new profit sharing ratio would be:
A
4:3:1
B
7:2:3
C
3:1:7
D
7:3:2
Answer B
125. A and B are partners in a business sharing profits in the ratio of 5 : 3. They admit C as a
partner with 1/4 share in the profits which he acquires 3/4 from A and 1/4 from B. He pays 4,000
as his share of Goodwill A and B will be credited by:
A
2,500 and 1,500 respectively
B
2,000 each
C
D
Answer D
126. A and B are partners in a firm sharing profits in the ratio of 3 : 2. They admit C as a new
partner for 1/3 share in the profits of the firm. The new profit sharing ratio of A, B and C is
________________.
A
3:2:1
B
3:2:2
C
3:2:3
D
6:4:5
Answer D
127. Goodwill of a firm of A and B is valued at 30,000. It is appearing in the books at 12,000. C is
admitted for 1/4 share. What amount he is supposed to bring for goodwill?
A
3,000
B
4,500
C
7,500
D
10,500
Answer B
128. A, B and C are the partners in a business firm sharing their profits in the ratio of 4 : 3 : 2. A
new partner D enters the firm. The new profit sharing of A, B, C and D is 5 : 4 : 2: 1. D contributes
a goodwill of Rs.36,000. This goodwill is to be allocated among A, B and C. Which one of the
following will be the correct allocation?
A
A - Rs.16,000, B - Rs.12,000, C - Rs.8,000
B
A - Rs.12,000, B - Rs.8,000, C - Rs.16,000
C
A - Rs.12,000, B - Nil, C - Rs.24,000
D
A - Rs.24,000, B - Nil, C - Rs.12,000
Answer C
129. A and B share profits in the ratio of 2 : 1. C has been admitted with 1/4 share in profits. The
new profit sharing ratio of the partners will be:
A
2:1:1
B
1:2:1
C
2:1:2
D
1:1:1
Answer A
130. If A and B who are sharing profits in the ratio of 3: 1 admit C to one-fourth share in the
future profits, the profit sharing ratio shall be
A
A:9/16;B:3/16;C :4/16
B
A: 10/16;B :2/16;C:4/16
C
A : 8/16 B :4/16; C : 4/16
D
A : 7/16 ; B : 5/16; C : 4/16
Answer A
131. A, B and C are equal partners. D is admitted to the firm for one-fourth share. D brings Rs.
20,000 as capital and Rs. 5,000 being half of the premium for goodwill. The value of goodwill of
the firm is _____________.
A
Rs.10,000
B
Rs.40,000
C
Rs.20,000
D
None of these
Answer B
132. Under average profit basis goodwill is calculated using following formula:
A
Average profits * no. of years of purchase.
B
Super profits * years of purchase.
C
Total of the discounted value of expected future profits.
D
Super profit divided with expected rate of return.
Answer A
133. A and B are partners sharing profits and losses in the ratio 5 : 3. They admitted C and agreed
to give him 3/10th of the profit. What is the new ratio after C's admission?
A
35:42:17
B
35:21:24
C
49:22:29
D
34:20:12
Answer B
134. In the case of downward revaluation of an asset which is for the first time revalued, the
account to be debited is ________________.
A
fixed Asset
B
revaluation Reserve
C
Profit and Loss account
D
general reserve
Answer C
135. A and B are partners sharing profits in the ratio 5:3, they admitted C giving him 3/10th share
of profit. If C acquires 1/5th share from A and 1/10th from B, new profit sharing ratio will be.
A
5:6:3
B
2:4:6
C
18:24:38
D
17:11:12
Answer D
136. The rate of underwriting commission payable on the issue of shares should not be more
than _____.
A
2%
B
3%
C
4%
D
5%
Answer D
137. Goodwill is a/an __________.
A
contingent asset
B
tangible asset
C
intangible asset
D
current asset
Answer C
138. In the case of downward revaluation of an asset, which is for the first time revalued,
___________ account is debited.
A
Fixed Asset
B
Revaluation Reserve
C
Profit & Loss account
D
General Reserve
Answer C
139. A, B and C are the partners sharing profits and losses in the ratio of 5:3:2, took a joint life
policy of Rs. 30,000. On the death of B what amount will be payable to each partner will be
____________.
A
A- Rs. 22,000 and B- Rs. 8,000
B
A- Rs. 14,000 and B- Rs. 16,000
C
A- Rs. 15,000, B- Rs. 9,000 and C- Rs. 6,000
D
A- Rs. 10,000, B- Rs. 8,000 and C- Rs. 10,000
Answer C
140. A and B are partners sharing profits in the ratio 5 : 3. They admitted C giving him 3/10 share
of profit. If C acquires 1/5th share from A and 1/10th from B, the new profit sharing ratio will be
_________.
A
5:6:3
B
2:4:6
C
18:24:38
D
17:11:12
Answer D
141. Goodwill brought in by incoming partner in cash is taken away by the old partners in
___________.
A
Old Profit Sharing Ratio
B
New Profit Sharing Ratio
C
Sacrificing Ratio
D
Capital Ratio
Answer C
142. All of the following except one is the method of recording joint life policy ______________.
A
premium paid charged to revenue
B
JLP Account maintained at the surrender value
C
JLP Account maintained at the surrender value along with the Reserve
D
Surrender value distributed among the partners in the profit sharing ratio
Answer D
143. On the death of a partner, the amount of Join Life Policy is credited to the Capital Account of
_____________.
A
Only the deceased partner
B
All partners including the deceased partner
C
Remaining partners, in the new profit sharing ratio
D
Remaining partners, in the old profit sharing ratio
Answer B
144. Under annuity basis goodwill is calculated by using ___________.

A
Average profits * years of purchase
B
Super profits * years of purchase
C
Total of the discounted value of expected future benefits
D
Super profit divided with expected rate of retwun
Answer C
145. The profits of last three years are Rs.52,000, Rs.49,000 and Rs.55,000. Find out the goodwill
of two years purchase.
A
Rs.62,000
B
Rs.1,04,000
C
Rs.1,46,000
D
Rs.56,000
Answer B
146. At the time of retirement of a partner, firm gets _________ from the insurance company
against the Joint Life Policy taken by the firm.
A
Policy Amount
B
Surrender Value of the Retiring partner
C
Policy Value for the retiring partner and Surrender Value for the rest
D
Surrender Value for all the partners
Answer D
147. The profits and losses for the last years are : 2001-02 Losses Rs.8,000; 2002-03 Losses
Rs.4,500; 2003-04 Profits Rs.1,00,000 & 2004-05 Profits Rs.74,000.The average capital employed
in the business is Rs.2,40,000. The rate of return expected from capital invested as 10%. The
remuneration of partners is estimated to be Rs.1,000 per month. Calculate the value of goodwill
on the basis of two years' purchase of super profits base on the average of four years.
A
Rs.9,000
B
Rs.8.750
C
Rs.8,500
D
Rs.8,250
Answer B
148. The following trading results are available in respect of the business carried on by a firm:
2001 Loss Rs.10,000
2002 Loss Rs.5,000
2003 Profit Rs.80,000
2004 Profit Rs.55,000
The value of goodwill on the basis of 5 years' purchase of average profit of the business will be
___________.
A
Rs.1,25,000
B
Rs.1,50,000
C
Rs.1,00,000
D
Rs.1,20,000
Answer B
149. Under capitalization basis goodwill is calculated by using __________.

A
Average profits * no. of years of purchase
B
Super profits * years of purchase
C
Total of the discounted vale of expected benefits
D
Super profit divided with expected rate of return
Answer D
150. X and Y share profits and losses in the ratio of 2: 1. They take Z as a partner and the new
profit sharing ratio becomes 3 : 2: 1. Z brings Rs. 9,000 as a premium for goodwill.The full value
of goodwill will be ________.
A
Rs.9,000
B
Rs.36,000
C
Rs.54,000
D
Rs.48,000
Answer C
151. Goodwill of a firm of A and B is valued at 30,000. It is appearing in the books at 12,000. C is
admitted for 1/4th share. The amount of goodwill, which he is supposed to bring, will be:
A
4,500
B
3,000
C
7,500
D
10,500
Answer A
152. The capital of B and D are! 90,000 and! 30,000 respectively with the profit sharing ratio 3 : 1.
They decide to change the ratio to 5 : 3. On the date of change Goodwill is valued at! 84,000. B
and Ds capital will be credited by _________.
A
63,000 and 21,000
B
50,000 and 34,000
C
52,500 and 31,500
D
60,000 and 24,000
Answer A
153. A and B are partners with the capital Rs.50,000 and Rs.40,000 respectively.They share profits
and losses equally. C is admitted on bringing Rs.50,000 as capital only and nothing was brought
against goodwill. Goodwill in Balance sheet of Rs.10,000 is revalued as 30,000.What will be value
of goodwill in the books after the admission of C?
A
Rs.60,000
B
Rs.30,000
C
Rs.20,000
D
Rs.15,000
Answer B
154. A and B are partners sharing the profit in the ratio of 3 : 2 they take C as the new partner,
who brings in 25,000 against capital and 10,000 against goodwill. New profit sharing ratio is 1 :
1 : 1. In what ratio will this amount be shared among the old partners A and B?
A
8,000:2,000
B
5,000:5,000
C
Old partners will not get any share in the goodwill bought in by C.
D
6,000:4,000
Answer A
155. A, B and C were partners sharing profit and losses in the ratio of 3 :2 :1. A retired and firm
received the joint life policy Rs. 12,000. The Joint Life Policy Account appearing in the balance
sheet at Rs. 20,000. What will be the treatment for the balance in Joint Life Policy i.e., Rs.8,000.
A
Rs. 8,000 credited to partner's current account in profit sharing ratio.
B
Rs. 8,000 debited to revaluation account
C
Rs. 8,000 debited to partner's capital account in profit sharing ratio.
D
Either (b) or (c)
Answer D
156. A, B and C take a Joint Life Policy. After five years, B retires from the firm. Old profit sharing
ratio is 2 :2 :1. After retirement A and C decide to share profits equally. They had taken a Joint
Life Policy of Rs. 2,00,000 with the surrender value Rs. 30,000 What will be the treatment in the
partners capital account on receiving the JLP amount if joint life policy A/C is maintained at the
surrender value?
A
Rs. 30,000 credited to all the partners in old ratio
B
Rs. 2,00,00 credited to all the partners in old ratio
C
Rs. 1,70,000 credited to all the partners in old ratio
D
No treatment is required
Answer D
157. Which of the following statements is true?

A
In case of separate sets of books method of Joint Venture, co-venturers contribution of goods is
debited in Joint Bank Account
B
Co-venturers contribution in cash is debited in Venturers personal account
C
Discount on discounting of BIR is debited to Venturers personal account
D
Contract money received is credited to Joint Venture account.
Answer D
158. Suresh consigned 2,000 pieces of goods to his agent costing 30 each an invoice price of 20%
over cost price. 4/5th of the goods were sold by Agent at a profit margin of 25% on his cost. Sale
value of goods will be _________.
A
Rs.90,000
B
Rs.60,000
C
Rs.72,000
D
Rs.75,000
Answer C
159. When a new partner brings his share of goodwill in cash, the amount is debited to:
A
Goodwill A/c
B
Capital A/c of the new partner
C
Cash A/c
D
Capital A/cs of the old partners
Answer C
160. Firm has earned exceptionally high profits from a contract which will not be renewed. In
such a case, the profit from this contract will not be included in:
A
Profit share of the partners
B
Calculation of the goodwill
C
Both (a) and (b)
D
None of these
Answer B
161. X, Y and Z were partners sharing profits in the ratio of 1/5,1/3 and 7/15 respectively. Z
retires and his share was taken up by X and Y in the ratio of 3:2. The new ratio will be ________.
A
12:13
B
5:3
C
3:2
D
1:1
Answer A
162. The profits for the last three years are: 2002-03 Rs 42,500; 2003-04 Profits Rs 56,000 and
2004-05 Profits Rs 68,000. The total liabilities of the firm are Rs 10,00,000 of which outsiders'
liabilities Rs 5,00,000. The rate of interest expected from capital invested is 10%. Calculate the
value of goodwill on capitalisation basis taking weighted average of Net Profit.
A
Rs 97,000
B
Rs 97,250
C
Rs 97,500
D
Rs 97,750
Answer C
163. When a goodwill account is raised at the time of admission of a new partner, credit is given
to old partners in their__________.
A
B
C
ratio of sacrifice
D
capital ratio
Answer C
164. On the admission of a partner if goodwill account is to be raised, this should be debited
to_________.
A
partner's capital account
B
goodwill account
C
cash account
D
profit and loss adjustment account
Answer B
165. All accumulated profits and losses are written off among all partners in the___________.
A
new profit-sharing ratio
B
old profit-sharing ratio
C
sacrificing ratio
D
gaining ratio
Answer B
166. If A and B share profit in the ratio of 3:1 and if C is admitted as a new partner who purchases
1/4 share of profit from A, the new ratio of A, B and C will be________.
A
A=5/10,B=3/10,C=2/10
B
A=1/2,B=1/4,C=1/4
C
A=3/8,B=1/8,C=1/4
D
A=3/5,B=1/5,C=1/5
Answer B
167. Super profit is __________.

A
the average profit earned by the firm
B
the normal profit
C
the difference between average profit and normal profit
D
all of the above
Answer C
168. X, Y and Z have been sharing profits and losses in the ratio of 3:2:1. Z retires. His share is
taken over by X and Y in the ratio of 2:1. The new profit sharing will be _________.
A
3:2
B
1:1
C
11:7
D
2:1
Answer C
169. Goodwill arises because __________.

A
the firm is able to earn more than the normal return on the capital invested
B
the firm is quite odd in the industry
C
the firm is the market leader in terms of turnover
D
the investment made by the firm is quite large
Answer A
170. 'A' and 'B', who are partners, share profits in the ratio of 7:3, 'C' is admitted as a new
partner, 'A' surrenders 1/7 of his share and 'B' surrender 1/3 of his share in favour of 'C'. The
new profit sharing ratio will be ___________.
A
6:2:2
B
4:1:1
C
3:2:2
D
None of these
Answer A
171. Gaining ratio is equal to ____________.

A
old ratio minus new ratio
B
new ratio minus old ratio
C
old ratio plus new ratio
D
old ratio/ New ratio
Answer B
172. A, B and C are three partners sharing profits and losses in the ratio of 4:3:2. D is admitted for
1/10 share. The new ratio will be __________.
A
5:4:3:2
B
6:5:3:2
C
4:3:2:1
D
None of these
Answer C
173. Find the goodwill of the firm using capitalisation, method from the following information:
Total Capital Employed in the firm Rs.8,00,000;
Reasonable Rate of Return 15%;
Profits for the year Rs. 12,00,000.
A
Rs.82,00,000
B
Rs.12,00,000
C
Rs.72,00,000
D
Rs.42,00,000
Answer C
174. X and Y are sharing profits in the ratio of 3:1. Z joined the firm by taking 1/3 rd share. The new
profit sharing ratio is ___________.
A
3:1:2
B
3:2:1
C
6:5:4
D
4:1:3
Answer A
175. An increase in the value of fixed asset is referred to as _________.
A
depreciation
B
appreciation
C
market capitalization
D
reverse depreciation
Answer B
176. X and Y are partners in the ratio of 2:1. Z joins the firm for 1/4 shares. The new profit sharing
ratio is _________.
A
3:1:1
B
3:1:2
C
2:1:1
D
2:1:2
Answer C
177. Jayant, Karthik and Leena were partners in a firm sharing profits and losses in the ratio of
5:2:3. Kartik died and Jayant and Leena decided to continue the business. Their gaining ratio was
2:3.
Calculate the new profit sharing ratio of Jayant and Leena.
Answer New ratio = old ratio + gain ratio
Jayant new ratio = 5/10 + 2/5 = 45/50
Leena new ratio= 3/10 + 3/5 = 45/50
so the new ratio will be 1:1.
178. X and Y are partners sharing profits in the ratio of 7 : 3. Z is admitted for 3/7 share in the
profit. The new profit sharing ratio of the partners will be ______________.
A
14:6:15
B
7:6:7
C
7:3:3
D
5:3:3
Answer A
179. A and B are partners in the ratio of 7:5. They admit C for 1/5 share. What is the new profit
sharing ratio?
A
7:5:3
B
7:5:1
C
2:2:1
D
3:2:1
Answer A
180. The executors of the deceased partner are entitled to a share of profit earned by the firm
from the date of last balance sheet and to the date of death. Which of the entry will be passed
for this purpose? (Name of the deceased partner was Mr.X)
A
Profit & Loss Suspense A/c Dr
To X A/c
B
X A/c Dr
To Profit & Loss A/c
C
X A/c Dr
To Memorandum Revaluation A/c
D
X A/c Dr
To Profit & Loss Suspense A/c
Answer A
181. Which of the following factor generally contribute to the value of goodwill of a firm?
A
Efficiency of business.
B
Risk involved in the business.
C
Location of the business.
D
All of above.
Answer D
182. Weighted average method of calculating goodwill should be followed when ___________.
A
Profits are uneven
B
Profits has increasing trend
C
Profits has decreasing trend
D
Either (B) or (C)
Answer D
183. Which of the following factor generally contribute to the value of goodwill of a firm?
A
Quality of goods sold by the firm.
B
Reputation of the owners.
C
D
All of the above.
Answer D
184. In which of the following case the need for the valuation of goodwill in a firm may arise?
A
Admission of new partner
B
While changing profit sharing ratio
C
Retirement or death of partner
D
All of above
Answer D
185. Which of the following asset is compulsory to revalue at the time of admission of a new
partner?
A
Stock
B
Fixed Assets
C
Investment
D
Goodwill
Answer D
186. Under average profit basis goodwill is calculated by :

A
No. of years purchased multiplied with average profits
B
No. of years purchased multiplied with super profits
C
Summation of the discounted value of expected future benefits
D
Answer A
187. The correct entry for recording losses on revaluation would be:
A
Debit-Revaluation A/c, Credit-Partners Capital A/c's
B
Debit-Partners Current A/c's, Credit-Revaluation A/c
C
Debit-Partners Capital A/c's, Credit-Revaluation A/c
D
Debit-Revaluation A/c, Credit-Partners Current A/c's
Answer C
188. Gaining Ratio = _______ Minus _______ .

A
Old Ratio, New Ratio
B
Old Ratio, Capital Ratio
C
New Ratio, Old Ratio
D
None of above
Answer C
189. In the absence of proper agreement, representative of the deceased partner is entitled to
the dead partner's share in ____________.
A
Profits till date, good will, joint life policy, share in revalued assets and liabilities.
B
Capital, good will, joint life policy, interest on capital, share in revalued assets and liabilities.
C
Capital, profits till date, good will, interest on capital, share in revalued assets and liabilities.
D
Capital, profits till date, good will, joint life policy, share in revalued assets and liabilities.
Answer B
190. A, B & C partners sharing profits & losses in the ratio of 4:3:2. B decided to retire from the
firm. Calculate the new profit sharing ratio of A & C if B gives his share to A & C in equal
proportion.
A
7:2
B
25:11
C
11:7
D
2:1
Answer C
191. Find the goodwill from the following information:
Capital employed - Rs.11,00,000
Rate of normal return - Rs.10%
Future Maintainable profit - Rs.2,00,000
No. of year purchase -3 years
A
Rs.6,00,000
B
Rs.2,70,000
C
Rs.9,00,000
D
Rs.3,70,000
Answer B
192. Average profit of a firm is Rs.1,20,000. The rate of capitalization is 12%. Assets and liabilities
of the firm are 10,000 & Rs.4,25,000 respectively. The value of goodwill of the firm is
________________.
A
Rs.3,25,000
B
Rs.2,25,000
C
Rs.5,25,000
D
Rs.5,85,000
Answer D
From the following information calculate the value of goodwill.

193. The adjusted forecast maintainable profit is Rs. 40,000, Capital employed is Rs. 2,00,000,
Normal rate of return is 15%, Capitalization rate is 20%.
A
Rs. 50,000
B
Rs. 75,000
C
Rs. 40,000
D
Rs. 60,000
Answer A
194. When required amount for premium for goodwill is not brought in by new partner, goodwill
account is raised in the books of the firm by debiting goodwill account and crediting partners
capital account in
A
B
C
Scarifying ratio
D
Capital ratio
Answer B
195. The amount that the incoming partner pays for goodwill is known as ________________.
A
Adjusted goodwill
B
Premium for capital
C
Premium for goodwill
D
Hidden goodwill
Answer C
196. The capital of B & D are Rs.90,000 and Rs.30,000 respectively with the profit sharing ratio
3:1. The new ratio is 5:3. The goodwill is valued Rs.80,000 as on the date. Amount payable by a
gaining partner to a scarifying partner is
A
B will pay to D Rs.10,000
B
D will pay to B Rs.10,000
C
B will pay to D Rs.80,000
D
D will pay to B Rs.80,000
Answer B
197. On the admission of a new partner, it is believed that the assets have changed in value. to
record a decrease in the value of an asset the double entry should be _____________________.
A
Debit-Asset A/c, Credit-Capital A/c
B
Debit-Asses A/c, Credit-Revaluation A/c
C
Debit-Revaluation A/c, Credit-Capital A/c
D
Debit-Revaluation A/c, Credit-Asset A/c
Answer D
198. Sometimes, all the partners including the new partner may agree no to alter the book value
of assets and liablities even when they agree to revalue them. In order to record this, ______ is
opened.
A
Revaluation A/c
B
Memorandum Revaluation A/c
C
Memorandum Goodwill A/c
D
Memorandum Suspense A/c
Answer B
199. A & B are partner for 5:3. The take C and new profit sharing ratio will be 3:2:1. Profit of loss
in revaluation is shared by __________.
A
A,B & C in 5:3:2
B
A & B in 3:2
C
A & B in 5:3
D
A & B in scarifying ratio
Answer C
200. Find the goodwll of the firm using capilatalization method from the following information:
Capital employed Rs.4,80,000
Rate of normal - 15%
Profits for the year Rs.90,000
A
Rs.4,20,000
B
Rs.3,11,000
C
Rs.1,20,000
D
Rs.2,20,000
Answer C
201. R & S are in partnership sharing profit and losses at the ratio 3:2. They take T as a new
partner. Calculate the new profit sharing ratio, if T simply gets 1/10th share of profit.
A
27:18:5
B
28:17:5
C
5:4:1
D
19:19:12
Answer A
202. A & B are partners sharing profits & losses in the ratio of 3:2. C was admitted to the firm and
to introduce a capital of Rs.25,000. The new profit sharing ratio of A,B and C will be 3:2:1
respectively. C is unable to fring in cash for his share of goodwill, partners therefore, decide to
raise goodwill account in the books of the firm. They further decide to calculate goodwill on the
basis of C's share in the profits and the capital contribution made by him to the firm. Before
admission of C capital account balance of A & B was Rs.44,000 & Rs.36,000 respectively. Total
goodwill to be raised in the books of the firm will be __________.
A
Rs.1,50,000
B
Rs.1,00,000
C
Rs.50,000
D
Rs.45,000
Answer D
203. X & Y sharing profits in the ratio of 3:1. They admit Z as a partner who pays Rs.4,000 as
goodwill the new profit sharing being 2:1:1 among X,Y & Z respectively. The amount of goodwill
will be credited to ___________.
A
X & Y as Rs.3,000 & Rs.1,000 respectively
B
X only
C
Y only
D
None of the above
Answer B
partner. Calculate the new profit sharing ratio, if T purchases 1/10th share from R.
A
27:18:5
B
28:17:5
C
5:4:1
D
19:19:12
Answer C
205. Y & W were in partnership sharing profit & losses equally. They admit S as a partner and
decide to share profits equally. Goodwill is valued at Rs.60,000 but is to be immediately written
off. The effect of this on Y's capital would be to ___________.
A
increase it by Rs.10,000
B
increase it by Rs.30,000
C
decrease it by Rs.20,000
D
decrease it by Rs.10,000
Answer A
206. A & B are partners having capital of Rs.29,000 & Rs.15,000. Reserve shown in balance sheet
was Rs.10,000. C is admitted as a new partner introducing a capital of Rs.21,000. New parofit
sharing ratio is 5:3:2. Profit on revaluation of assets & liabilities were Rs.5,000. C is to bring
premium for goodwill in cash. Goodwill amount being calculated on the basis of C's share in the
profits and capital contributed by him. Premium for goodwill to be brought in new partner C
should be ________
A
Rs.30,000
B
Rs.25,000
C
Rs.15,000
D
Rs.5,000
Answer D
207. A & B are partner sharing profits and losses in the ratio of 3:2. C is coming as a new partner
for 1/3rd share. Calculate new profit sharing ratio among A, B & C.
A
6:4:5
B
5:4:6
C
3:2:3
D
2:3:3
Answer A
208. A & B are equal partners. They admit C and D as partners with 1/5th and 1/6th share
respectively. What is the profit sharing ratio of all the partners?
A
27:18:5:6
B
28:17:5:6
C
5:4:5:6
D
19:19:12:10
Answer D
209. A & B are partners sharing the profit in the ratio of 3:2. They take C as the new partner, who
is supposed to bring Rs. 50,000 against capital and Rs. 20,000 against goodwill. New profit
sharing ratio is 1:1:1. C brought cash for his share of Capital and agreed to compensate to A and
B outside the firm. How this will be treated in the books of the firm?
A
Cash brought in by C will only be credited to his capital account.
B
Goodwill will be raised to full value in old ratio.
C
Goodwill will be raised to full value in new ratio.
D
Cash brought by C will be credited to his account and debited with his share of goodwill, which will
be debited to A and B's account in sacrificing ratio.
Answer A
210. Capital employed by a partnership firm is Rs. 1,00,000. Its average profit is Rs. 20,000.
Normal rate of return is 15%. Value of goodwill.
A
Rs. 33,333
B
Rs. 30,000
C
Rs. 23,333
D
Rs. 43,667
Answer A
211. A & B shares profit and losses equally. The admit C as an equal partner and assets were
revalued as follow: Stock at Rs.20,000 (book value Rs.12,000); Machinery at Rs.60,000 (book
value Rs.55,000). Find profit/loss on revaluation to be shared among A & B.
A
Profit 6,500 & 6,500
B
Profit 4,000 & 4,000
C
Profit 2,500 & 2,500
D
None of the above
Answer A
212. X & Y share profits & losses in the ratio of 2:1. They take Z as a partner and the new profit
sharing ratio becomes 3:2:1. Z brings Rs.4,500 as premium for goodwill. The full value of
goodwill will be _____________.
A
Rs.24,000
B
Rs.27,000
C
Rs.18,000
D
Rs.4,500
Answer B
213. Goodwill is a fictitious asset.

A
True
B
False
Answer B
214. A & B shares profit and losses equally. The admit C as an equal partner and assets were
revalued as follow:Stock at Rs.10,000 (book value Rs.12,000); Machinery at Rs.50,000 (book
value Rs.55,000): Building would be appreciated by 10% (book value Rs.15,000). Find the
profit/loss on revaluation to be shared among A and B.
A
Profit 2,750 & 2,750
B
Loss 2,750 & 2,750
C
Profit 2,500 & 2,750
D
None of the above
Answer B
215. When a partner dies, the _________.

A
profit share of the deceased partner is divided amongst the remaining partner and the firm
continues its business
B
deceased partners share is given to his legal representative
C
both (A) & (B)
D
none of the above
Answer A
216. A,B & C are in partnership sharing profits and losses in the ratio 2:2:1. They want to admit D
into partnership with 1/5 share. D brings in Rs.30,000 as capital and Rs.10,000 as premium for
goodwill. If premium money is retained in business which of the following journal entry is
correct for sharing premium for goodwill?
Answer
217. A partnership contract was revised and due to this revision it was found that the distribution
of profit amongst the partners is required to be changed after true closure of accounts. This will
affect which account?
A
Commission payable account
B
Past adjustment of profit
C
Interest on capital
D
Interest on drawings
Answer B
218. The correct equation for calculation of super profit method used for calculation of Goodwill
is
A
Annual profit-fair returnof capitalemployed
B
Average annual profit -fair returnof capitalemployed
C
Average annual profit-current profit of the firm
D
None of the above
Answer B
219. Goodwill should be tested for value impairment at which of the following levels?
A
Each identifiable long-term asset.
B
Each reporting unit.
C
Each acquisition unit.
D
Entire business as a whole.
Answer B
220. A partner retires but the business is still being carried on __________.
A
Profit sharing between the remaining partners will remain same
B
Share proportion remains same
C
Share proportion changes
D
Both a & c
Answer D
221. A partner retires but the business is still being carried on
A
Profit sharing between the remaining partners will remain same
B
Share proportion remains same
C
Share proportion changes
D
Both a & c
Answer D
222. Goodwill valuation is not required to be done in the following condition

A
Partnership business is being changed
B
Business is sold
C
At the time profit is being distributed among the partners at the end of financial year
D
All of the above
Answer C
223. The correct equation for calculation of super profit method used for calculation of Goodwill
is
A
Annual profit-fair return of capital employed
B
Average annual profit - fair return of capital employed
C
Average annual profit- current profit of the firm
D
None of the above
Answer B
224. X, Y and Z are partners in a business, sharing profits and losses equally. Z dies, and the firm is
dissolved. On the date of dissolution, the capital of X, Y and Z were Rs. 20,000, 15,000 and Rs.
10,000 respectively and the outside liabilities amounted to Rs. 65,000. The total assets of the
firm realized Rs. 50,000. What is the amount of deficiency and how the partners shall share such
deficiency if the partnership agreement is silent?
Answer
225. X, Y and Z are partners. The partnership agreement is silent. State whether the firm is
dissolved on 31.03.99 in each of the following alternative cases:
case (a): If the firm was constituted for 5 years and 5 years have expired on 31.03.99.
Case (b): If the firm was constituted for completion of a construction of a bridge and the
construction completed on 31.03.99.
Case (C): If X died on 31.03.99.
Case (d): If X applies for insolvency on 31.03.99 and is declared insolvent on 30.04.99.
Case (e): If X retires on 31.03.99.
Case (f): If X is expelled as partner on 31 03.99 and the expulsion is invalid.
Answer
226. Solve.
X, Y and Z jointly promise to pay? Rs. 9,000 to W. Who is liable to pay the amount to W in each of the
following alternative cases
Case (a) If X dies,
Case (b) X, Y and Z die?
Answer
227. X, Y and Z are partners in a business sharing profits and losses equally. X dies and the firm is
dissolved. On the date of dissolution, the capitals of X, Y and Z were Rs. 20,000, Rs. 15,000 and
Rs. 10,000 respectively and the outside liabilities amounted to Rs. 65,000. The assets of the firm
realised Rs. 15,000. The private estate and debts of each partners were as follows:Private estate
Rs. 1,00,000 Rs. 2,00,000, Rs. 3,00,000 Private debt Rs. 1,10,000, Y Rs. 1,90,000, Z Rs. 3,10,000
The outside creditors claim that the deficiency of Rs. 50,000 (i.e., Rs. 65,000 -Rs. 15,000) should
be contributed by the partners out of their private estate which amounted to 6,00,000 because
the partners are jointly and severally liable to
pay firms debts. Discuss the validity of their claim.
Answer
228. X, Y and Z are partners in a business, sharing profits and losses equally. Z dies, and the firm is
dissolved. On the date of dissolution, the capitals of X, Y and Z were Rs. 20,000, Rs. 15,000 and
10,00 respectively and the outside liabilities amounted to Rs. 65,000. X had advanced Rs. 10,000
as loan to the firm. State how the amount realized shall be used if the assets realized (a) Rs.
1,35,000 (b)Rs. 1,05,000?
Answer
229. A, B C, D and E are partners of a banking firm. State the legal position Of the firm for the
following acts of partners
(a) A borrow's money in the name of the firm.
(b) B orders for certain quantity of wine, on the firm's letter head.
(c) C receives money from a borrower of a firm and utilized this amount for personal use without
informing other partners about the receipt of this money.
(d). D borrows money on his own credit by giving his own promissory note and utilizes subsequently
this amount for firm's use.
Answer
230. Sometimes, the partners of a firm decide to change their _________ profit sharing ratio
without the admission or retirement of a partner.
A
old
B
new
C
existing
D
both a and b
Answer C
231. On the admission of a new partner, it is believed that the assets have changed in value. To
record a decrease in the value of an asset the double entry should be:
A
Asset A/c Dr
To Revaluation A/c
B
Profit and loss A/c Dr
To Asset A/c
C
Revaluation A/c Dr
To Profit and loss A/c
D
Revaluation A/c Dr
To Asset A/c
Answer D
232. If goodwill is to be created and then immediately written off, the correct method of entering
this in the accounts would be -
A
Debit - Capital A/c (Old Ratio)
Credit - Current A/c (New ratio)

B
Debit - Capital A/c (Old Ratio)
Credit - Capital A/c (New ratio)

C
Debit - Current A/c (New Ratio)
Credit - Current A/c (Old ratio)

D
Debit - Capital A/c (New Ratio)
Credit - Capital A/c (Old ratio)

Answer D
233. Choose the correct answers from the alternatives given.

The heir of the deceased partner _______.
A
has a right to become a partner in the firm of the deceased partner
B
does not have a right to become a partner in the firm of the deceased partner
C
can become a partner in the firm of the deceased partner only if the surviving partners give their
consent in this regard
D
both (b) & (C)
Answer D
234. Under average profit basis, goodwill is calculated by -

A
No. of years purchased multiplied with average profits.
B
No. of years purchased multiplied with super profits.
C
D
Answer A
235. The amount that the incoming partner pays for goodwill is known as ____________.
A
adjusted goodwill
B
premium for capital
C
premium for goodwill
D
hidden goodwill
Answer C
236. Which of the following asset is compulsory to revalue, at the time of admission of a new
partner?
A
Stock.
B
Fixed Assets.
C
Investment.
D
Goodwill.
Answer D

In case of death of a partner ________.
A
the firm is dissolved unless otherwise agreed
B
the estate of deceased partner is liable for any act of the firm after the date of his death if no public
notice is given
C
both (A) & (B)
D
none of these
Answer A
238. Which of the following formula is/are used for valuation of goodwill under super profit
basis?
A
Goodwill = Super profit x No. of years purchase.
B
C
Goodwill=
Super profit/ Capitalization rate ×100
D
Any of the above.
Answer D
239. Weighted average method of calculating goodwill should be followed when -

A
Profits are uneven.
B
Profits have increasing trend.
C
Profits have decreasing trend.
D
Either (B) or (C).
Answer B
240. Which of the following factors generally contribute to the value of goodwill of a firm?
A
Efficiency of management.
B
C
Location of the business.
D
All of above.
Answer D
241. A, B & C are partners sharing profits and loss in the ratio 3:2:1. They decide to change their
profit sharing ratio to 2:2:1. To give effect to this new profit sharing ratio, they decide to value
the goodwill at Rs 30,000. Pass the necessary journal entry if Goodwill is not appearing in the
old balance sheet and should not appear in the new balance sheet.
Answer A
partner. Calculate the new profit sharing ratio. If T purchases 1/10th share from R.
A
27:18:5
B
28:17:5
C
5:4:1
D
19:19:12
Answer C
243. A & B are equal partners.They admit C and D as partners with 1/5th and 1/6th share
respectively. What is the profit sharing ratio of all the partners?
A
27:18:3:6
B
28:17:5:6
C
5:4:5:6
D
19:19:12:10
Answer D
244. Profits & losses for the last years are:

2011-
Losses Rs 10,000
2012
2012-
Losses Rs 2,500
2013
2013-
Profits Rs 98,000
2014
2014-
Profits Rs 76,000
2015
The average capital employed in the business is Rs 2,00,000. The rate of interest expected from
capital invested is 12%. Calculate the value of goodwill on the basis of four years' purchase of
super-profits.
A
Rs 65,500
B
Rs 40,375
C
Rs 24,000
D
Rs 16,375
Answer A
245. Average profit of a firm is Rs.1,20,000. The rate of capitalization is 12%. Assets and
liabilities of the firm are Rs.10,00,000 & Rs.4,25,000 respectively. The value of goodwill of the
firm is _____________.
A
Rs.3,25,000
B
Rs.2,25,000
C
Rs.5,25,000
D
Rs.4,25,000
Answer D
246. From the following information calculate the value of goodwill.

The adjusted maintainable profit is Rs 40,000, Capital employed is Rs 2,00,000, Normal rate of
return is 15%, Capitalization rate is 20%.
A
Rs 50,000
B
Rs 75,000
C
Rs 40,000
D
Rs 60,000
Answer A
247. Find the goodwill of the firm using capitalization method from the following information:
Total Capital Employed Rs.8,00,000;
Reasonable Rate of Return 15%;
Profits for the year Rs.12,00,000.
A
Rs.82,00,000
B
Rs.12,00,000
C
Rs.72,00,000
D
Rs.42,00,000
Answer C
248. When required amount of premium for goodwill is not brought in by new partner,
goodwill account is created in the books of the firm by debiting goodwill account and crediting
partners capital account in ______.
A
New profit sharing ratio.
B
Old profit sharing ratio.
C
Sacrificing ratio.
D
Capital ratio.
Answer B
Capital employed Rs.4,80,000;
Rate of normal return - 15%;
Profits for the year Rs.90,000.
A
Rs.4,20,000
B
Rs.3,11,000
C
Rs.1,20,000
D
Rs.2,20,000
Answer C

Capital employed - Rs. 11,00,000
Rate of normal return - Rs. 10%
Future Maintainable profit - Rs. 2,00,000
No. of year purchases - 3 years
A
Rs. 6,00,000
B
Rs. 2,70,000
C
Rs. 9,00,000
D
Rs. 3,70,000
Answer B
251. A,B & C Care sharing profits in 4:3:2 ratio. B retires. In A & C shares profits of B in 5:3, then
find the new profit sharing ratio.
A
47:25
B
17:11
C
31:11
D
14:21
Answer A
252. A & B are partners sharing profit & losses in the ratio of 3:2. They take C as a partner for
1/4th share. Calculate future profit sharing ratio.
A
3:2:4
B
9:6:4
C
9:6:5
D
6:4:4
Answer C
253. In which of the following case the need for the valuation of goodwill in a firm may arise?
(I) Admission of new partner
(II) While changing profit sharing ratio
(III) Retirement of partner
(IV) death of partner
Select the correct answer from the options given below
A
(I) & (III) only
B
(I) , (III) & (IV)
C
(I) , (II) & (III) only
D
All (I) to (IV)
Answer D
254. N, S & Z are partners. They withdraw a fixed sum of Rs. 2,000 per month as follows:
N draws at the beginning of each month, S withdraws at the middle of each month and Z
withdraws at the end of each month. Rate of interest on drawings is 8% p.a. Interest on
drawings for the 3 partners respectively will be.
A
87,80 & 73
B
1,040, 960 & 880
C
880,960 & 1,040
D
867,800 & 733
Answer B
255. A & B were partners sharing profits & losses in the ratio of 3:1. C was admitted to the firm
on the following terms:
C would provide Rs 1,00,000 as a capital and pay Rs 20,000 as goodwill for his 1/3rd share in
future profits. Goodwill account would not appear in the books. A, B & C would share profits
equally. Which of the following journal is correct in relation to premium for goodwill Rs 20,000
brought in by new partner?
A
D
Answer A
256. A, B & C are equal partners. D is admitted to the firm for one-fourth share. D brings Rs
40,000 capital and Rs 10,000 being half of the premium for goodwill. The value of goodwill of
the firm is ________.
A
Rs. 20,000
B
Rs. 80,000
C
Rs. 40,000
D
None of the above
Answer B
257. A, B & C are partners sharing profits and losses in the ratio 6:3:3, they agreed to take D
into partnership for 1/8th share of profits. Find the new profit sharing ratio.
A
12 : 27 : 36 : 42
B
14 : 7 : 7: 4
C
1:2:3:4
D
7:5:3:1
Answer B
258. A, B & C partners in a firm sharing profits and losses in the ratio of 4:3:2. B decided to
retire from the firm B gives his share to A only. What is the gain ratio?
A
1/3:0
B
1/9:0
C
11:7
D
2:1
Answer A
259. A & B are partners sharing profits in the ratio 5:3, they admitted C giving him 3/10th share
of profit. If C requires 1/5 from A and 1/10 from B, new sharing ratio will be:
A
5:6:3
B
2:4:6
C
18:24:38
D
17:11:12
Answer D
260. N & Z are partners sharing profits and losses in the ratio 5:3. They admitted S and agreed
to give him 3/10th of the profit. What is the new ratio after S's admission?
A
34:20:12
B
42:22:29
C
35:21:24
D
35:42:17
Answer C
261. A, B & C share profits and losses in the ratio of 1:1:1. B retired from business and his share
is purchased by A & C in 40:60 ratio. New profit sharing ratio between A & C would be
________.
A
1:1
B
2:3
C
7:8
D
3:5
Answer C
262. A and B are partners sharing profits in the ratio of 7:3. A surrenders 1/7th of his share and
B surrenders 1/3rd of his share in favour of C, a new partner. The new profit sharing ratio and
sacrificing ratio will be _________.
A
NR 1:3:1, SR 1:1
B
NR 2:2:1, SR 1:1
C
NR 3:1:1, SR 7:3
D
NR 3:1:1, SR 1:1
Answer D
263. A and B are partners sharing profits in the ratio of 4:1. C is admitted for 1/4th share in
profits which he acquires wholly from A. The new profit sharing ratio will be _________.
A
4:11:5
B
10:5:5
C
8:7:5
D
11:4:5
Answer D
264. A and B are partners sharing profits and losses in the ratio of 3:2. They admit C into the
partnership for one-fourth share of the profits while A and B as between themselves are
sharing profits & losses equally. The new profit sharing ratio will be _______.
A
NR 3:3:2, SR 1:9
B
NR 4:2:2, SR 9:1
C
NR 3:3:2, SR 9:1
D
None of these
Answer C
265. X and Y shared profit and losses in the ratio of 3:2. With effect from 1st April they agreed
to share profits equally. The goodwill of the firm was valued at Rs 30,000. The necessary single
adjusting entry will involve.
A
Debit Y and Credit X by Rs 3,000
B
Debit X and Credit Y with Rs 3,000
C
Debit X and Credit Y with Rs 300
D
Debit Y and Credit X with Rs 300
Answer B
266. Accumulated profits/losses & reserves are shared by the old partners in their ________.
A
Capital ratio
B
C
Sacrificing ratio
D
Answer D
267. A and B are two partners sharing profits in the ratio of 3:2. They admit C into partnership
as a partner. A gives 1/3rd of his share while B gives 1/10th from his share. The new profit
sharing ratio will be __________.
A
3:4:3
B
6:1:3
C
2:4:3
D
10:9:6
Answer D
268. A and B are partners sharing profits in the ratio of 3:2. They admit C who takes 2/7th from
A and 1/7th from B. The new profit sharing ratio will be _______.
A
15:9:11
B
15:11:9
C
11:9:15
D
9:11:15
Answer C
269. A, B and C are partners in the ratio of 3:2:1. W is admitted with a 1/6th share in profits. C
would retain his original share. The new profit sharing ratio will be ______.
A
8:12:5:5
B
10:6:4:4
C
12:8:5:5
D
None of these
Answer C
270. A and B are partners sharing profits in the ratio of 3:2. C is admitted into the firm for 1/5th
share in the profit which he acquires equally from A and B. The new profit sharing ratio will be
________.
A
3:5:2
B
4:4:24:4:2
C
5:3:2
D
6:2:2
Answer C
271. Accumulated profits/losses & reserves on the retirement of a partner are shared by the
partners in their __________.
A
Capital ratio
B
C
D
Gaining ratio
Answer C
272. A and B are partners sharing profits in the ratio of 1:2. They admit C for 1/5th share and
decide to share future profits equally. The new profit sharing ratio will be _______.
A
2:2:1
B
3:1:1
C
1:3:1
D
None of these
Answer A
273. A, B and C share profits as 1/2 to A,1/3 to B, 1/6 to C. B retires, and his share is taken up by
A and C in the ratio of 1:3. The new profit sharing ratio will be ________.
A
1/2:1/6
B
5:7
C
7:5
D
none of these
Answer C
274. A, B and C are partners sharing profits in the ratio of 1/2,1/3 and 1/6. B retires. A and C
decide to share future profits in the ratio of 3:2. The gaining ratio will be ______.
A
3:2
B
2:3
C
7:3
D
3:7
Answer D
275. A, B and C are partners sharing profits in the ratio of 1/2,2/5 and 1/10. B retires and his
share is taken up by A and C in the ratio of 1:5. The new profit sharing ratio of A and C will be
__________.
A
1/2:1/10
B
13:17
C
17:13
D
none of these
Answer C
276. A, B and C share profits in the ratio of 4/9,1/3 and 2/9. B retires. The new ratio, if A
purchases B's share, will be __________.
A
4:2
B
2:7
C
7:2
D
none of these
Answer C
277. A, B and C are partners sharing profits in the ratio of 4:3:2. B retires. A and C decide to
share profits in the future in the ratio of 5:3. The gaining ratio will be _______.
A
11:13
B
4:2
C
3:5
D
13:11
Answer D
278. X, Y and Z are partners sharing profits & losses in the ratio of 4/8:1/3:2/9 respectively. Y
retires. The gaining ratio and the new profit sharing ratio will be _________.
A
1:1,1:1
B
1:2,1:2
C
2:1,2:1
D
none of these
Answer C
279. X, Y and Z are partners sharing profits & losses in the ratio of 4/9: 1/3: 2/9 respectively. Y
retires, and his share is taken up by X and Z in the ratio of 13:11. The new profit sharing ratio
will be _________.
A
3:5
B
1:1
C
5:3
D
none of these
Answer C
280. X, Y, Z are partners sharing profits and losses in the ratio of 1/2:1/8:3/8. Z retires and
surrenders 4/9th of his share in favour of X and remaining in support of Y. The new profit
sharing ratio will be ______.
A
1:2
B
2:1
C
4:5
D
5:4
Answer B
281. Under capitalisation of super profit method, goodwill is calculated by ___________.

A
no. of years purchased multiplied with average profits
B
no. of years purchased multiplied with super profits
C
summation of the discounted multiplied with super profits
D
super profit divided with expected rate of return
Answer D
282. X, Y and Z share in the ratio of 9:6:4. Y retires. X and Z decide to share the future profits in
the same ratio in which Y and Z shared. The gaining ratio will be _______.
A
3:2
B
2:3
C
1:1
D
None of these
Answer B
283. The profits and losses for the last 4 years are Losses Rs. 20,000; Losses Rs. 5,000; Profits Rs.
1,96,000 & Profits Rs. 1,52,000.The average capital employed in the business is Rs. 4,00,000.
The rate of interest expected from capital invested is 12%. The remuneration of partners is
estimated to be Rs. 2,000 per month. The value of goodwill from two years' purchase of super
profits based on the average of four years is __________.
A
Rs. 18,000
B
Rs. 17,500
C
Rs. 17,000
D
Rs. 16.500
Answer B
284. Under super profit method goodwill is calculated by ___________.

A
B
C
D
Answer B
285. Under annuity, basis goodwill is calculated by __________.

A
B
C
D
Answer C
286. A, B, C are partners sharing profits and losses in the ratio of 4/9:1/3:2/9. B retires and
surrenders 1/9th of his share in favour of A and remaining in support of C. The new profit
A
13:14
B
14:13
C
1:8
D
8:1
Answer A
287. A, B, C are partners sharing profits and losses in the ratio of 4/9: 1/3: 2/9. B retires and
surrenders 1/9th from his share in favour of A and remaining in support of C. The new profit
A
13 : 8
B
1:2
C
4:5
D
2:1
Answer A
288. The following particulars are available in respect of the business carried on by a
partnership firm:
Trading Results:
Year I Loss Rs. 10,000
Year Il Loss Rs. 12,000
Year Ill Profit Rs. 1,50,000
Year IV Profit Rs. 1,20,000
The value of goodwill on the basis of 5 years purchase of the average profit of the business is
_________.
A
Rs.2,50,000
B
Rs. 3,10,000
C
Rs, 20,000
D
Rs.3,40,000
Answer B
289. The profits and losses for the last years are: l year Losses Rs.20,000; ll year Losses Rs.
5,000; lll year profits Rs.1,96,000 & IV year profits Rs. 1,52,000. The average capital employed
in the business is Rs. 4,00,000. The rate of interest expected from capital invested is 12%. The
remuneration of partners is estimated to be Rs, 2,000 per month. The value of goodwill by
four years purchase of super profits based on the annuity of the four years. ( Take discounting
rate as 10%) is ________.
A
Rs. 27,000
B
Rs. 27,136
C
Rs. 27,336
D
Rs. 27,729
Answer D
290. X, Y and Z are partners sharing profits & losses in the ratio of 4/9:1/3:2/9 respectively. Y
retires and surrenders 13/72nd from his share in favour of X and the remaining In support of Z.
The gaining ratio will be ______.
A
13 : 11
B
11 : 13
C
5:3
D
3:5
Answer A
291. A, B and C are partners sharing profits in the ratio of 4:3:2. D is admitted for 2/9th share of
profits and bring Rs 30,000 capital and 10,000 for his share of goodwill. The new profit sharing
ratio between partners will be 3:2:2:2. The premium for goodwill will be credited in the capital
accounts of __________.
A
A only
B
A, B and C (equally)
C
A and B (equally)
D
A and C ( equally)
Answer C
292. A and B are partners, sharing profits in the ratio of 5:3 ,they admitted C , who acquires
1/10th equally from the both. What will be the new profit sharing ratio?
A
21:11:8
B
20:10:4
C
15:10:5
D
None
Answer A
293. A, B, and C share profit and losses in the ratio of 3: 2: 1. D is admitted with 1/6 share which
he gets entirely from A. New ratio will be ___________.
A
1/3:1/3:1/6:1/6
B
3:1:1:1
C
2:2:2:1
D
None
Answer A
294. Total Capital Employed in the firm Rs. 16,00,000.

Reasonable Rate of Return 15%.
Profits for the year Rs. 24,00,000.
The value of goodwill using capitalization method is _________.
A
Rs.1,64,00,000
B
Rs. 24,00,000
C
Rs. 1,44,00,000
D
Rs. 84,00,000
Answer C
295. A firm has an average profit of Rs 60,000. Rate of return on capital employed is 12.5% p.a.
Total capital employed is Rs 4,00,000. Goodwill is to be calculated on the basis of two years
purchase of super profit. Find the amount of goodwill?
A
Rs 20,000
B
Rs 15,000
C
Rs 10,000
D
None
Answer A
296. The profits for Year I are Rs 4,000; for Year ll is Rs.52,200, and for Year lll is Rs. 62,400.
Closing stock for Year ll and Year lll includes the defective items of Rs. 4,400 and Rs. 12,400
respectively which were considered as having market value NIL. The value of goodwill on
average profit method is ________.
A
Rs. 47,400
B
Rs. 35,400
C
Rs. 27,400
D
Rs. 34,600
Answer B
297. What do you mean by purchasing years?

A
No. of years in which goodwill is purchased.
B
No. of years the goodwill is expected to remain.
C
Both of these
D
None of these
Answer B
298. What is the extra amount over and above the values of the identifiable assets in a going
concern is known as?
A
Goodwill
B
Revaluation profit
C
Super profit
D
Surplus
Answer A
299. X and Y share profit and losses in the ratio of 4:3 they admit Z in the firm it 3/7 share
which he gets 2/7 from X and 1/7 from C. The new profit sharing ratio will be __________ .
A
7:3:3
B
2:2:3
C
5:2:3
D
2:3:3
Answer B
300. What do you mean by super profit?

A
Total profit/number of years
B
Weighted profit /number of years
C
Average profit -normal profit
D
None
Answer C
301. How is gain ratio calculated?

Answer
Gaining ratio is calculated by the following formula:
Gain ratio = New ratio - Old ratio
302. X, Y, Z are partners sharing profits in the ratio 3:4:3 Y retires, and X and Z share his profits
in equal ratio. Find the new ratio of X and Z.
A
1:2
B
2:1
C
3:1
D
1:1
Answer D
303. Ram, Rahim, Singh and John are partnership sharing profits and losses equally. They
mutually agree to change their profit sharing ratio to 2:2:1:1. In this case John's share would
decrease by __________ Share of profit and loss.
A
1/24
B
1/12
C
1/10
D
1/6
Answer B
304. How unrecorded assets are treated at the time of retirement of a partner?
A
Credited to revaluation account.
B
Credited to the capital account of retiring partner only.
C
Debited to revaluation account.
D
Credited to partner's capital account.
Answer A
305. The articles of association can be altered by ___________ .

A
A resolution of the board of directors
B
An ordinary resolution in general meeting
C
A special resolution in general meeting
D
Obtaining permission from the Company Law Board
Answer C
306. A, B and C are partners sharing profits and losses I the ratio of 1/2,3/10 and 1/5, B retires
from the firm, A and C decide to share the future profits and losses in 3:2, Calculate gaining
ratio.
A
1:2
B
1:3:2
C
2:3
D
None of these
Answer A
307. If the firm gets dissolved due to the retirement of one the partners then what amount of
JLP will be credited in partner's capital A/c?
A
Maturity Value.
B
Surrender Value.
C
Policy Value.
D
None of these.
Answer B
308. X, Y, Z are equal partners in a firm. Z retires from the firm. The new profit sharing ratio
between X and Y is 1:2. Find the gaining ratio.
A
3:2
B
2:1
C
4:1
D
Only Y gains by 1/3
Answer D
309. The balance of joint life policy account as shown in the balance sheet represent
___________.
A
the surrender value of a policy
B
annual premium of JLP
C
total premium paid by the firm
D
amount receivable on the maturity of the policy
Answer A
310. Hari, Roy and Prasad are parters in the ratio of 3:5:1 respectively. Roy wants to retire. His
share is being purchased by Prasad. What would be the new ratio of Hari and Prasad
respectively?
A
1:2
B
2:1
C
3:5
D
Equal
Answer A
311. Does partnership firm has a separate legal entity? Give reason in support of your answer.
Answer
Unlike Companies, partnership firm does not have separate legal entity. A partnership is formed by
two or more person who decides to carry on some business and share the profits in some agreed
ratio.
The partners are the contributors of capital and their is no common seal of a partnership firm. The
partners signature represents the firm. The liabilities of the partners are limited to the capital
contributed by them and if there is insolvency then the private properties of the partners are also
liable. If the partners of the firm become insolvent, then automatically the firm becomes insolvent
too.
312. State any three circumstances other than (i) admission of a new partner, (ii) retirement of
a partner and (iii) death of a partner, when need for valuation of goodwill of a firm may raise.
Answer
Three circumstances that require the valuation of the goodwill of a firm are:
(i) When the company or the business is being sold off to another company or when the company is
amalgamated with another company;
(ii) When the partnership is sold to some other concern ongoing concern basis;
(iii) When the profit-sharing ratio in which the partners share their profits, changes.
313. List the items that are debited to Profit and Loss Appropriation Account.
Answer
Profit and loss Appropriation account is prepared to show the distribution of net profit among the
partners. It is only an extension of profit and loss account.
The profit and loss appropriation account is debited with items which are appropriation of profits.
Such items are:-
1.Salary to partners.
2.Interest on capital.
3. Commission to partners.
4.Transfer to reserves.
5.Share of partners in the profits.
314. Manbir and Nimrat are partners and they admit Anahat into partnership. It was agreed to
value Goodwill at three years purchase on weighted average profit method taking profits of
last five years. Weights assigned to each year as 1,2,3,4 and 5 respectively to profits for the
year ended 31st march 2014 to 2018. The profits for these years were Rs.70,000, Rs 1,40,000,
Rs.1,00,000, Rs. 1,60,000 and Rs. 1,65,000 respectively.
Scrutiny of books of account revealed following information:
(i) There was an abnormal loss of Rs.20,000 in the year ended 31st March,2014.
(ii) There was an abnormal gain (profit) of Rs.30,000 in the year ended 31st March ,2015.
(iii) Closing stock as on 31st March, 2017 was over valued by Rs.10,000.
Calculate the value of goodwill.
Answer
315. What is meant by `unlimited liability of a partner'?

Answer
Unlimited liability means that the liability of a partner is joint and several. The personal assets of the
partner can be utilised for paying a firm's debts.
316. If vendors are issued fully paid shares of Rs 1,00,000 in consideration of net assets of Rs
80,000, the balance of Rs 20,000, will be debited to
A
Profit and Loss A/c
B
Goodwill A/c
C
Capital Reserve A/c
D
Capital A/c
Answer B
317. A and B are partners sharing profits and losses in the ratio of 5:3.On first 1st April,2018, C
is admitted to the partnership for 1/4th share of profits. For this purpose, goodwill is to be
valued at two years purchase of last three years profit (after allowing partners
remuneration).Profits to be weighted 1:2:3,the greatest weight being given to last year. Net
profit before partners remuneration were 2015-16 : Rs. 2,00,000; 2016-17: Rs
2,30,000; 2017-18 :Rs.2,50,000.The remuneration of the partners is estimated to be RS.
90,000 p.a.Calculate amount of goodwill.
Answer
318. Kumar, Lakshya, Manoj and Naresh are partners sharing profits in the ratio of 3:2:1:4.
Kumar retires and his share is acquired by Lakshya and Manoj in the ratio of 3:2. Calculate new
profit-sharing ratio and gaining ratio of the remaining partners.
Answer
319. Tick the correct answer.

______ is an intangible asset.
A
Goodwill
B
Stock
C
Building
D
Cash
Answer A
320. Short notes:

Define Goodwill.
Answer
Goodwill is an element that arises from the reputation, connections and advantages earned by a
business because of the way it works. Goodwill allows the business to earn profits greater than the
expected return of the firm. Goodwill is an intangible asset which means that it cannot be seen or
felt but can be bought and sold in the market. A well-established firm has better connections and
reputation which helps it in earning super normal profits compared to newly incorporated firms; this
monetary advantage is termed as the Goodwill of the firm.
321. X,Y and Z are sharing profits and losses in the ratio of 5:3:2 With effect
from 1st April, 2018 ,they decide to share profits and losses in the ratio of 5:2:3 Calculate each
partner's gain or sacrificed due to the change in ratio.
Answer
322. Calculate the value of firm's goodwill on the basis of one and half years purchase of the
average profit of the last three years. the profit for first year was Rs. 1,00,000, profit for the
second year was twice the profit of the first year and for third year profit was one and half
times of the profit of the second year.
Answer
323. Calculate value of goodwill on the basis of three years purchase of average profit of the
preceding five years were as follows:
year 2017-18 2016-17 2015-16 2014-15 2013-14
4,00,000(Loss
Profits(Rs)8,00,00015,00,00018,00,000 13,00,000
)
Answer
324. A and B are sharing profits and losses equally. With effect from 1st April, 2018, they agree
to sharing-profits in the ratio 4:3 .Calculate individual partner's gain or sacrifice due to the
change in ratio.
Answer
325. How does the nature of business affect the value of Goodwill of a firm?
Answer
A firm having stable demand for its high value-added goods will be able to earn more profits, and
therefore, will have more goodwill.
326. State any two factors affecting the value of Goodwill of a firm.
Answer
Goodwill is the value of reputation of a firm in respect of profits expected in future over and above
the normal rate of profits.
There are various factors which affect goodwill:
Customer service- If any business provides better customer services such as after sales services, early
services, etc. then it will raise goodwill of the firm and attract more customers.
Location- If the business is centrally located or located in a busy area, it can attract more customers
and hence results in more profit. Therefore, locational factor has to be considered as a factor while
valuing goodwill.
327. Why is the value of goodwill determined when a firm is reconstituted?

Answer
Reconstitution of firm takes place when there is a new admission of a partner, retirement of partner,
death of a partner or simply a change of terms of a partner. At the time of reconstitution of a firm,
all assets and liabilities need to be revalued, goodwill need to be determined, reserves must be
distributed among all partners in old profit sharing ratio. All these adjustments need to be done
before reconstitution of firm because it is the combined effort of all parrtners and hence should be
distributed among old partners in their old profit sharing ratio.
328. X,Y and Z are sharing profits and losses in the ratio of 5:3:2 With effect
from 1st April, 2018 ,they decide to share profits and losses equally. Calculate each partner's
gain or sacrifice due to the change in ratio.
Answer
Gaining ratio or sacrificing ration will be calculated as:
Gaining/Sacrificing Ratio = New Ratio - Old Ratio
Therefore:
For X = 1/3 - 5/10
= 10 - 15
30
= - 5/30 Sacrificing Ratio
For Y = 1/3 - 3/10
= 10 - 9
30
= 1/30 Gaining Ratio
For Z = 1/3 - 2/10

= 10- 6
30
= 4/30 Gaining Ratio
329. Do you distribute Reserves at the time of Reconstitution of a firm? Why?

Answer
Yes we distribute reserves at the time of reconstitution of a firm.
Reserves are the accumulated funds of the company which are kept aside for the general financial
strengthening of the company. At the time of admission of a partner the reserve is distributed
among the old partners in the old profit sharing ratio because the new partner has no share in it.
During retirement or death of a partner the reserve is distributed among all the partners in their old
profit sharing ratio because before the reconstitution of new profit sharing ratio due to retirement
or death of a partner all the old accumulated funds of the company should be divided among the
partners.
330. The average net profit expected in future by XYZ firm is Rs.36,000 per year. Average
capital employed in the business by the firm is Rs. 2,00,000. The normal rate of return from
capital invested in his class of business is 10%. Remuneration of the partners is estimated to
be Rs. 6,000 p.s. Find out the value of goodwill on the basis of two years purchase of super
profit.
Answer
Step 1: Calculation of Normal Profit:
Normal Profit= Capital employed * [ Normal rate of return/100]
= 200000* [10/100]
= 20000
Step 2: Calculation of Actual Profit:
Actual Profit= 36000-6000
= 30000
Super Profit= Actual profit- Normal Profit
= 30000- 20000
=10000
Goodwill= 10000* 2
= 20000
331. A and B are partners in a firm sharing profits in the ratio of 2:1 . They decided with effect
from 1st April, 2017 ,that they would share profits in the ratio of 3:2 .But, this decision was
taken after the profit for the year 2017−18 amounting to Rs. 90,000 was distributed in the old
ratio.
Value of firm's goodwill was estimated on the basis of aggregate of two years' profits
preceding the date decision became effective.
The profits for 2015−16 and 2016−17 were Rs. 60,000 and Rs. 75,000 respectively. It was
decided that Goodwill Account will not be opened in the books of the firm and necessary
adjustment be made through Capital Accounts which, on 31st $$ stood, at Rs. 1,50,000
and Rs. 90,000 for B. Pass necessary Journal entries and prepare Capital Accounts.
Answer
332. X,Y and Z are partners sharing profits and losses in the ratio of 5:3:2, decided to share
future profits equally with effect from 1st April, 2018. On that date, the goodwill appeared in
the books at Rs. 12,000. But it was revalued at Rs. 3,000 . Pass journal entries assuming that
goodwill will not appear in the books of account.
Answer
1. X's Capital A/c.........Dr. 6000
Y's Capital A/c.........Dr. 3600
Z's Capital A/c.........Dr. 2400
To Goodwill A/c 12000
(Being existing Goodwill written off in old ratio)
2. Y's Capital A/c.........Dr. 100
Z's Capital A/c.........Dr. 400
To X's Capital A/c 500
(Being goodwill shared among the partners)
workings:
X: 1/3 - 5/10 = (5/30) Sacrifice ratio
Y: 1/3 - 3/10 = 1/30 Gaining ratio
Z: 1/3 - 2/10 = 4/30 Gaining Ratio
333. A business has earned average profit of Rs.4,00,000 during the last few years and the
normal rate of return in similar business is 10%. Find value of goodwill by:
(i) Capitalisation of Super Profit Method, and
(ii) Super Profit Method if the goodwill is valued at 3 years purchase of super profits.
Assets of the business were Rs. 40,00,000 and its external liabilities Rs.7,20,000.
Answer
(i) Capitalisation of Super Profit Method:
Step 1: Calculation of Capital Employed:
Capital Employed= Assets- External Liabilities
= 4000000- 720000
= 3280000
Normal Profit= 3280000 * [10/100]
= 328000
Average Profit= 400000

Super Profit= 400000- 328000
= 72000
Goodwill= Super Profit * [100/Normal Rate Of Return]
= 72000 * [100/10]
= 720000
(ii) Super Profit Method:
Capital Employed= Assets- External Liabilities
= 4000000- 720000
= 3280000
Normal Profit= 3280000 * [10/100]
= 328000
Super Profit= 400000- 328000
= 72000
Goodwill= Super Profit * Number of years' of purchase
= 72000 * 3
= 216000
334. X and Y are partners in a firm sharing profits and losses in the ratio of 3:2, With effect
from 1st April, 2018, they decided to share future profits equally. On the date of change in the
profit-sharing ratio, the Profit and Loss Account showed a credit balance of Rs. 1,50,000.
Record the Journal entry for the distribution of the balance in the profit and Loss Account
immediately before the change in the profit-sharing ratio.
Answer
Profit and Loss A/c..... Dr. 150000
To Y's Capital A/c 60000
(Being profit distributed in old ratio)
Working notes :-
X's share in profit = 150000 * 3/5 = 90000
Y's share in profit = 150000 * 2/5 = 60000
335. A firm earns profit of Rs5,00,000. Normal rate of Return in a similar type of business
is 10%. The value of total assets (excluding goodwill) and total outsider liabilities as on the
date of goodwill are Rs.55,00,000 and Rs.14,00,000 respectively. Calculate value of goodwill
according to Capitalisation of Super Profit Method as well as Capitalisation of Average Profit
Method.
Answer
(i) Capitalisation of Super Profit Method:
Capital Employed= 5500000- 1400000
= 4100000

Normal Profit= 4100000 * [10/100]
= 410000


Super Profit= 500000- 410000
= 90000

Goodwill= 90000 * [100/10]
= 900000
(ii) Capitalisation of Average Profit Method:

Step 1: Calculation of Capitalised value of Profit:
Capitalised value of Profit= Profit * [100/ Normal Rate of return]
= 500000 * [100/10]
= 5000000

Capital Employed= 5500000- 1400000
= 4100000

Goodwill= Capitalised value of Profit- Capital Employed
= 5000000- 4100000
= 900000
336. A,B and C are partners sharing profit and losses in the ratio 5:4:1 . Calculate new profit
sharing ratio, sacrificing ratio in each of the following cases :
Case 1.C acquires 1/5th share from A.
Case 2.C acquires 1/5th share from A and B
Case 3.A,B and C will share future profits and losses equally.
Case 4.C acquires 1/10th share of A and 1/2 share of B .
Answer
Case 1.
Calculation of new profit sharing ratio:
A's new ratio= old ratio-sacrifice
= 5/10-1/5
= 3/10
B's ratio= 4/10
C's new ratio= 1/10+1/5
= 3/10
New ratio= 3:4:3
Calculation of sacrificing ratio:

A's sacrifice= 1/5
C's gain= 1/5
Case 2.
A's new ratio= 5/10-1/5
= 3/10
B's new ratio= 4/10-1/5
= 2/10
C's new ratio= 1/10+1/5+1/5
= 5/10
New ratio= 3:2:5

A's sacrifice= 1/5
B's sacrifice= 1/5
Ratio= 1:1
C's gain= 1/5+1/5
= 2/5
Case 3.
A's sacrifice= 5/10-1/3
= 5/30
B's sacrifice= 4/10-1/3
= 2/30
C's gain= 7/30
Case 4.
A's sacrifice= 5/10 * 1/10
= 5/100
B's sacrifice= 4/10 * 1/2
= 4/20
Sacrificing ratio= 5:20 = 1:4

A's new share= 5/10-5/100
= 9/20
B's new share= 4/10-4/20
= 4/20
C's new share= 5/100+4/20
= 25/100
New ratio= 45:20:25
= 9:4:5
337. Jay and Raj are partners sharing profits in the ratio of 3:2 , with effect from 1st April, 2018 ,
they decided to share profits equally. Goodwill appeared in the books at Rs. 25,000 . As
on 1st April, 2018 , it was valued at Rs. 1,00,000 . They decided to carry goodwill in the books
of the firm.
Pass the Journal entry giving effect to the above.
Answer
1. Jay's Capital A/c........Dr. 15000
Raj's Capital A/c........Dr. 10000
(Being goodwill already appearing in the books written off in old ratio)
2. Goodwill A/c..........Dr. 100000
To Jay's Capital A/c 50000
To Raj's Capital A/c 50000
(Being the revalued amount of Goodwill raised in new ratio)
338. A,B and C shared profits and losses in the ratio of 3:2:1 respectively. With effect
from 1st April, 2018 ,they agreed to share profits equally. The goodwill of the firm was valued
at Rs. 18000. Pass necessary Journal entries when
(a) Goodwill Account is not opened
(b) Goodwill Account is opened.
Answer
339. A and B are partners in a firm, sharing profits in the ratio of 4:1. They decided to share
future profit in the ratio of 3:2 w.e.f. 1st April, 2018. On that day, Profit and Loss Account
showed a debit balance of Rs. 1,00,000. Pass Journal entry to give effect to the above.
Answer
A's Capital A/c..............Dr. 80000
B's Capital A/c...............Dr. 20000
To Profit and Loss A/c 100000
(Being debit balance of profit and loss shared in old ratio)
340. X,Y and Z are partners sharing profits and losses in the ratio of 5:3:2 . From 1st April, 2018 ,
they decided to share profits and losses equally. The Partnership Deed provides that in the
event of any change in the profit-sharing ratio, the goodwill should be valued at two years'
purchase of the average profit of the preceding five years. The profits and losses of the
preceding years are :
Year 2013−142014−152015−162016−172017−18
Profit (Rs.)70,000 85,000 45,000 35,000 10,000 (Loss)
Pass the necessary journal entries:
(i) When goodwill account is opened
(ii) When goodwill account is not opened
Answer
The treatment of goodwill in partnership accounts is a major adjustment. Goodwill in simpler terms
is the reputation of a business valued in monetary terms. Whenever there is change in the
constitution of the partnership, an adjustments need to be made to the goodwill.
In the given question there is change in profit sharing ratio of the partners and we have to value the
goodwill on the basis of information provided and then adjustment entries needed to be passed.
1. valuation of Goodwill:- calculation of average profit
Total profits of 5 years= ( 70,000+85,000+45,000+35,000-10,000)/5
= 2,25,000/5 = 45,000
2. Value of goodwill based on 2 years purchase= 2 * 45,000= 90,000
Our next step will be the adjustment. We have to pass separate entries for the separate given
situation.
1. When goodwill account is opened:- As we have to open a goodwill account, any entry needs to be
passed through the goodwill account. So, in this case first we will distribute goodwill among the
partners in old ratio and then write off the goodwill in the new ratio.

Goodwill A/c 90,000
To X' capital A/c 45,000
To Y' capital A/c 27,000
To Z' capital A/c 18,000
( Goodwill distributed in ratio 5:3:2)
X' capital A/c 30,000
Y's capital A/c 30,000
Z's capital A/c 30,000
To Goodwill A/c 90,000
( Goodwill written off in 1:1:1)
2. When Goodwill account is not opened:- In this case we have to pass journal entries through the
capital accounts of the partners. As there is change in profit sharing ratio, it means one or more
partner is purchasing from another partner. So, there is loss to some and gain for some partner.
So, first we need to find the gaining ratio of the partners.
Gaining Ratio = New ratio - Old ratio
X = 1/3 - 5/10 = -5/30
Y = 1/3 - 3/10 = 1/30
Z=1/3 - 2/10 = 4/30
X is the sacrificing partner and Y and Z are the gaining partner. So, Y and Z needs to compensate X.
Goodwill = 90,000 * 5/30= 15,000. So, now 15,000 amount of goodwill will be compensated to X by Y
and Z in the ratio of 1:4 i.e gaining ratio.
Y's capital A/c 3000
Z's Capital A/c 12,000
To X's capital A/c 15,000
341. A,B and C who are presently sharing profits and losses in the ratio of 5:3:2 decided to
share future profits and losses in the ratio of 2:3:4 . Give the Journal entry to distribute
'Investments Fluctuation Reserve' of Rs. 20,000 at the time of change in profit sharing ratio,
when Investment (market value Rs. 95,000 ) appears in the books at Rs. 1,00,000 .
Answer
1. Investment Fluctuation Reserve A/c.......Dr. 5000
To Investments A/c 5000
(Being the decrease in the market value of the investments adjusted with the reserve)
2. Investment Fluctuation Reserve A/c.......Dr. 15000
To Z's Capital A/c 3000
(Being the balance in investment fluctuation reserve distributed in the old ratio)
342. Anita, Bimla and Cherry are three partners. On 1st April 2017, their Capitals stood as: Anita
Rs. 1,00,000, Bimla Rs. 2,00,000 and Cherry Rs. 3,00,000. It was decided that: (a) they would
receive interest on Capital @ 5% pa., (b) Anita would get a salary of Rs. 5,000 per month, (c)
Bimla would receive commission @ 5% of net profit after deduction of commission, (d) 10% of
the divisible profit would be transferred to the General Reserve. Before the above items were
taken into account, the profit for the year ended 31st March 2018 was Rs. 5,00,000. Prepare
Profit and Loss Appropriation Account and the Capital Accounts of the Partners.
Answer
343. X and Y shared profits and losses in the ratio of 3:2 with effect from 1stApril,2018 they
agreed to share profits equally. The goodwill of the firm was valued at Rs.60,000. The
necessary single adjustment entry will be :
A
Dr. Y and Cr. X with Rs.6,000.
B
Dr. X and Cr. Y with Rs.6,000.
C
Dr. X and Cr. with Rs.600.
D
Dr. Y and Cr. X with Rs.600.
Answer A
344. X and Y are in partnership sharing profits in the ratio 2:3. With effect from 1st April, 2018 ,

they agreed to share profits in the ratio of 1:2 . For the purpose, goodwill of the firm is to be
valued at two years' purchase of the average profit of last three years, which were
Rs. 1,50,000;1,60,000; and Rs. 2,00,000 respectively. The reserves appear in the books at
Rs. 1,10,000 Partners decide to continue showing reserves in the books. You are required to
give effect to the change by passing a single Journal entry.
Answer
1. Y's Capital a/c.......Dr 30000
(Being adjustment for goodwill and reserve made)
Working notes:
1. Goodwill = Average profit x no. of years of purchase
= (150000 + 160000 + 200000)/3 x 2 = 340000
2. X : 2/5 - 1/3 = 1/15 sacrifice
Y : 3/5 - 2/3 = 1/15 gain
3. Debit Y's capital A/c and Credit X capital for goodwill + reserve = 22667 + 7333 =30000
345. The goodwill of a firm is valued at Rs.1,35,000 at 3 years purchase of super profit.

Determine the missing values:
Average Profit =3,60,000/3=Rs.1,20,000
Normal Profit =Rs....×15/100=Rs....
Super Profit = Average Profit − Normal Profit
=Rs.1,20,000−Rs....=Rs...
Goodwill = Super Profit × No. of year's purchase.
Answer
Step 1: Calculation of Super Profit from Goodwill:
Super Profit= Goodwill/ No. of years' of purchase
= 135000/3
= 45000
Step 2: Calculation of normal profit from super profit:
Normal Profit= Average profit- Super Profit
= 120000- 45000
= 75000
Step 3: Calculation of capital employed from normal profit:
Capital Employed= Normal Profit/ [Rate of return/100]
= 75000 / [15/100]
= 500000
346. Anshul and Asha are partners, sharing profits and losses in the ratio of 3 : 2. Anshul being a
non-working a - partner contributed Rs. 8,00,000 as her capital. Asha being a working partner
did not contribute capital. The Partnership Deed provides for interest on capital @ 5% and
salary to every working partner @ Rs.2,000 per month. Net profit before providing for interest
on capital and partner's salary for the year ended 31st March 2018 was Rs. 32,000. Show
distribution of profits.
Answer
PROFIT AND LOSS APPROPRIATION ACCOUNT
To Interest on capital
(32,000*5/8) 20000 By net profit 32000
To salary(32,000*3/8) 12000
Total 32,000 Total 32,000
Interest on Anshul's capital = 8,00,000*5%= 40,000
Salary to Asha = 2000*12=24,000
As profit available is less than the appropriation to be made, the appropriation are to be
made in the ratio of interest on capital and salary i.e. 40,000:24000 = 5:3
347. P and Q were partners in a firm sharing profits and losses equally. Their fixed capitals were
Rs. 3,00,000 each respectively. The Partnership Deed provided for interest on capital @ 12%
per annum. For the year ended 31st March, 2016, the profits of the firm were distributed
without providing interest on capital. Pass necessary adjustment entry to rectify the error.
Answer
Here no need to pass adjustment as ultimate effect of transaction is similar.
Interest to be provided
P = 300000 * 12% = 36000 and Q = 300000 * 12% = 36000
Total = 36000+36000 = 72000
Above part wrongly distributed as a profit in equal ratio = P= 36000, Q = 36000
As both are same so it is compensating error as ultimate effect is same.
348. X,Y and Z who are presently sharing profits and losses in the ratio of 5:3:2 decide to share
future profits and losses in the ratio of 2:3:5 . Give the Journal entry to distribute 'Workmen
Compensation Reserve' of Rs. 1,20,000 at the time of change in profit-sharing ratio, when
there is a claim of Rs. 80,000 against it.
Answer
Workmen Compensation Reserve A/c....... Dr. 120000
To Z's Capital A/c 8000
To Workman compensation liability 80000
(Being the excess after the claim against the workmen compensation reserve, distributed in the old
ratio and workman liability creation)
349. Nitin, Tarun and Amar are partners sharing profits equally and decide to share profits in
the ratio of 2:2:1 w.e.f. 1st April, 2018 . The extract of their Balance Sheet as
at 31st March, 2018 is as follows :
Liabilities Rs. Assets Rs.
60,00
Investments Fluctuation Investments (At cost)4,00,000
0
Pass the Journal entries in each of the following situation :
(i) When its Market Value is not given
(ii) When its Market Value is given as Rs. 4,00,000 ;
(iii) When its Market Value is given as Rs. 4,24,000 ;
(iv) When its Market Value is given as Rs. 3,70,000 ;
(v) When its Market Value is given as Rs. 3,10,000.
Answer
1. Nitin's capital A/c 4000
Tarun's capital A/c 4000
To Amar's capital A/c 8000
(Being adjustment made for reserve, assuming that there is no decrease in value of investments)
(Being adjustment made for reserve)
(Being adjustment made for reserve)
4. Investment fluctuation reserve A/c.................Dr. 30000
(Being a decrease in the market value of investment adjusted through reserve)
Nitin's capital A/c 2000
(Being adjustment made for balance reserve)
5. Investment fluctuation reserve A/c.................Dr. 60000
Profit and Loss A/c.............................................Dr. 30000
(Being a decrease in the market value of investment adjusted through reserve)
Notes:
1. Calculation of gaining and sacrificing ratio
Nitin: 2/5 - 1/3 = 1/15
Tarun: 2/5 - 1/3 = 1/15
Amar: 1/5 - 1/3 = (2/15)
2. It is assumed that the partners decide to maintain the investment reserve in future.
350. X,Y and Z who are sharing profits and losses in the ratio of 5:3:2 decide to share future
profits and losses in the ratio of 2:3:5 with effect from 1st April, 2018 . Workmen
Compensation Reserve appears at Rs. 1,20,000 in the Balance Sheet as
on 31st March, 2018 and Workmen Compensation Claim is estimated at Rs. 1,50,000 Pass
Journal entries for the accounting treatment of Workmen Compensation Reserve.
Answer
Workmen compensation reserve A/c............Dr. 120000
Revaluation reserve a/c .................................Dr. 30000
To provision for W.C. Claim a/c 150000
(Being reserve distributed in old ratio)
X's Capital A/c 15000

Y's Capital A/c 9000
Z's Capital A/c 6000
To Revaluation reserve 30000
(Being reserve raised in the new ratio)
351. When a new partner brings cash for goodwill, the amount is credited to the __________ .
A
Premium for Goodwill Account
B
Capital Account of the new partner
C
Cash Account
D
None of the above
Answer A
352. A, B and C are partners sharing profits and losses in the ratio 5:3:2 . Their Balance Sheer
as 31st March, 2017 stood as follows :
Capital A/cs' :
A 2,50,000
Land and Building 3,50,000
B 2,50,000
C 2,00,000 7,00,000
General Reserve 60,000 Machinery 2,40,000
Investments Fluctuation Reserve 30,000 Computers 70,000
Sundry Creditors 90,000 Investments (Market Value Rs. 90,000)1,00,000
Sundry Debtors 50,000
Cash in Hand 10,000
Cash at Bank 55,000
Advertisement Suspense 5,000
8,80,000 8,80,000
They decide to share profits equally w.e.f. 1st April, 2017 . They also agreed that :
(i) Value of Land and Building be decreased by 5%
(ii) Value of Machinery be decreased by 5%
(iii) A Provision for Doubtful Debts be created @ 5% on Sundry Debtors.
(iv) A motor cycle valued at Rs. 20,000 was unrecorded and is now to be recorded in the books.
(v) Out of Sundry Creditors, Rs. 10,000 is not payable.
(vi) Goodwill is to be valued at 2 years' purchase of last 3 years profits. Profits being for 2016−17 -
Rs. 50,000 (Loss) ; 2015−16 - Rs. 2,50,000 and 2014−15 - Rs. 2,50,000
(vii) C was to carry out the work for reconstituting the firm at a remuneration (including expenses)
of Rs. 5,000 . Expenses came to Rs. 3,000.
Pass Journal entries and prepare Revaluation Account.
Answer
353. R and S are partners sharing profits in the ratio of 5:3. T joins the firm as a new
partner. R gives 1/4th of his share and S gives 1/5th of his share to the new partner.
Find out new profit-sharing ratio.
Answer
R's old share= 5/8
S's old share= 3/8
T's share= R's sacrifice + S's sacrifice

= [5/8 * 1/4] + [3/8 * 1/5]
= [5/32] + [3/40]
= 37/160
R's new share= 5/8- 5/32

= 15/32
S's new share= 3/8-3/40
= 12/40
354. A and B are partners sharing profits and losses in the proportion of 7:5. They agree to
admit C, their manager, into partnership who is to get 1/6th share in the profit. He acquires
this share as 1/24th from A and 1/8ht from B. Calculate new profit-sharing ratio.
Answer
A's old share= 7/12
B's old share= 5/12
C is admitted for 1/6th share
A's new ratio= 7/12- 1/24
= 13/24
B's new ratio= 5/12- 1/8
= 7/24
New Ratio of the firm= 13:7:4
355. When A and B, sharing profits and losses in the ratio of 3:2, admit C as a partner giving
him 1/5th share of profits. This will given by A and B __________ .
A
Equally
B
In the ratio of their profits.
C
In the ratio of their capitals.
D
None of these
Answer B
356. State whether Revaluation Account is debited or credited to record the increase in the
value of Plant and Machinery.
Answer
At the time of admission of a new partner, all assets are revalued and any gain or loss on such
revaluation is transferred to the Revaluation account. An increase in the value of plant and
machinery is recorded by crediting the revaluation account since it is a gain for the firm.
357. A and B sharing profits and losses in the ratio of 2/3rd and 1/3rd,admit C as a partner

giving him 1/4th share. The new profit-sharing ratio will be :
A
A−1/2, B−1/4, C−1/4
B
A−1/3, B−1/3, C−1/4
C
A−3/8, B−3/8, C−2/8
D
None of these
Answer A
358. Kabir and Farid are partners in a firm, sharing profits and losses in the ratio of 7:3. Kabir
surrenders 2/10th from his share and Farid surrenders 1/10th from his share in favour of Jyoti
new partner.
Calculate new profit-sharing ratio and sacrifice ratio.
Answer
(i) Calculation of new ratio:
Kabir's old share= 7/10
Farid's old share= 3/10
Jyoti acquires 2/10 from Kabir and 1/10 from Farid
Therefore, Jyoti's share= 2/10 + 1/10
= 3/10
Kabir's new ratio= 7/10- 2/10
= 5/10
Farid's new ratio= 3/10- 1/10
= 2/10
(ii) Calculation of sacrificing ratio:
Kabir's sacrifice= 2/10
Farid's sacrifice= 1/10
Hence, sacrificing ratio= 2:1
359. Find new Profit-Sharing Ratio:
(i) R and T are partners in a firm sharing profits in the ratio of 3:2. S joins the
firm. R surrenders 1/4th of his share and T surrenders 1/5th of his share in favour of S.
(ii) A and B are partners.They admit C for 1/4th share. In future, the ratio
between A and B would be 2:1.
(iii) A and B are partners sharing profits and losses in the ratio of 3:2. They
admit C for 1/5th share in profit. C acquires 1/5th of his share from A and 4/5th share from B.
(iv) X,Y and Z are partners in the ratio of 3:2:1. W joins the firm as a new partners
for 1/6th share in profits. Z would retain his original share.
(v) A and B are equal partners. they admit C and D as partners with 1/5th and 1/6th share
respectively.
(vi) A and B are partners sharing profits/losses in the ratio of 3:2. C is admitted
for 1/4th share. A and B decide to share equally in future.
Answer
(i) R's old share= 3/5
T's old share= 2/5
R's sacrifice= 3/5 * 1/4
= 3/20
T's sacrifice= 2/5 * 1/5
= 2/25
New Profit Sharing ratio of the partners:
R= 3/5-3/20
= 9/20
T= 2/5-2/25
= 8/25
S= 3/20 + 2/25
= 23/100
Therefore,
Profit sharing ratio= 45:32:23
(ii) A's old share= 1/2
B's old share= 1/2
Remaining share= 1-[1/4]
= 3/4
New Ratio between A and B should be 2:1
Hence, A's new share= 2/3 * 3/4
= 6/12
B's new share= 1/3 * 3/4
= 3/12
= 2:1:1
(iii) A's old share= 3/5
B's old share= 2/5
C is admitted for 1/5th share in the profit.
= 1/25
= 4/25
New profit sharing ratio of the partners:
A's new share= 3/5-1/25
= 14/25
B's new share= 2/5-4/25
= 6/25
C's share= 1/5
Ratio= 14:6:5
(iv) X's old share= 3/6
Y's old share= 2/6
Z's old share= 1/6
W is admitted for 1/6th share. Since, Z would retain his original share;
Remaining share= 1-[1/6]-[1/6]
= 4/6
X's new share= 4/6 * 3/5
= 12/30
Y's new share= 4/6 * 2/5
= 8/30
New Profit sharing ratio= 12:8:5:5
(v) A's old share= 1/2
B's old share= 1/2
C and D are admitted for 1/5th and 1/6th share respectively.
Hence, remaining share= 1- [1/5]- [1/6]
= 19/30
A's new share= 1/2 * 19/30
= 19/60
B's new share= 1/2 * 19/30
= 19/60
New Profit Sharing ratio= 19:19:12:10
(vi) A's old share= 3/5
B's old share= 2/5
C is admitted for 1/4th share.
= 3/4
Since, A and B will share equally, their ratio is 1:1
A's new share= 1/2 * 3/4
= 3/8
= 3/8
360. State whether Revaluation Account is debited or credited to record the decrease in the
value of Plant and machinery.
Answer
At the time of admission of a new partner, all assets are revalued to ascertain that they are recorded
in the books at their current values. Any gain or loss from such revaluation is transferred to the
revaluation account. A decrease in the value of plant and machinery is debited to the revaluation
since it a loss for the firm.
361. A and B are partners sharing profits in the ratio of 4:3 . Their Balance Sheet as
at 31st March, 2018 stood as :
Sundry Creditors 28,000Cash 20,000
Reserve 42,000Sundry Debtors1,20,000
Capital A/cs
A 2,40,000
B 1,20,00
3,60,000Stock 1,40,000
Fixed Assets 1,50,000
4,30,000 4,30,000
They decided that with effect from 1st April, 2018 , they will share profits and losses in the ratio
of 2:1 . For this purpose they decided that :
(i) Fixed Assets are to be depreciated by 10%
(ii) A Provision for Doubtful Debts of 6% be made on Sundry Debtors.
(iii) Stock be valued at Rs. 1,90,000
(iv) An amount of Rs. 3,700 included in Creditors is not likely to be claimed.
Partners decided to record the revised values in the books. However, They do not want to disturb
the Reserve. You are required to pass Journal entries, prepare Capital Accounts of Partners and
the revised Balance Sheet.
Answer
362. A and B are in partnership sharing profits and losses as 3:2. C is admitted for 1/4th share.
Afterwards, D enters for 20 paise in the rupee. Compute profit-sharing ratio
of A,B,C and D after D′s admission.
Answer
A's old share= 3/5
B's old share= 2/5

= 3/4

= 9/20
= 6/20
New Profit sharing ratio after C's admission= 9:6:5
Now, ratio before D's admission= 9:6:5
D is admitted for 20/100th share

= 80/100
Hence, A's new ratio= 9/20 * 80/100

= 72/200
B's new ratio= 6/20 * 80/100
= 48/200
C's new ratio= 5/20 * 80/100
= 40/200
New profit sharing ratio after D's admission= 72:48:40:40

= 9:6:5:5
363. A and B are partners in a firm, sharing profits and losses in the ratio of 3:2. A new
partner C is admitted. A surrender 1/5th of his share and B surrender 2/5th of his share in
favour of C. For the purpose of C′s admission, goodwill of the firm is valued
at Rs.75,000 and C brought in his share of goodwill in cash, which is retained in the firm's
books. Journalize the above transactions.
Answer
JOURNAL
1. Cash a/c..... Dr. 21000
To Premium for goodwill a/c 21000
(Being Premium for goodwill brought in by C)
2. Premium for goodwill a/c.... Dr. 21000

To A's Capital a/c 9000
To B's Capital a/c 12000
(Being premium for goodwill brought in by C, distributed among the partners in the ratio 3:4)
Working Note:
A's old share= 3/5
B's old share= 2/5
C is admitted as a new partner.

= 3/25

= 4/25
A share in premium of goodwill :- 21000 * 3/7 = 9000
B share in premium of goodwill :- 21000 * 4/7 = 12000
C's share= 3/25 + 4/25

= 7/25
Hence, C's share of goodwill= 7/25 * 75000
= 21000
364. M and J are partners in a firm, sharing profits in the ratio of 3:2. They admit R s a new
partner. The new profit sharing ratio between M,J and R will be 5:3:2. R brought
in Rs.25,000 for his share of premium for goodwill. Pass necessary Journal entries for the
treatment of goodwill.
Answer
JOURNAL
1. Cash a/c...... Dr. 25000
To Premium for Goodwill a/c 25000
(Being premium for goodwill brought in by R)
2. Premium for Goodwill a/c... Dr. 25000
To M's Capital a/c 12500
To J's Capital a/c 12500
(Being premium for goodwill brought in by R distributed in the ratio of 1:1)
Working Note:
1. Calculation of sacrificing ratio:
M's sacrifice= 3/5- 5/10 = 1/10
J's sacrifice= 2/5- 3/10 = 1/10
2. Distribution of goodwill:
M's share= 1/2 * 15000= 12500
J's share= 1/2 * 15000= 12500
365. A,B,C and D are in partnership sharing profits and losses in the ratio

of 36:24:20:20 respective E joins the partnership for 20% share and A,B,C and D in future
would share profits among themselves as 3/10:4/10:2/10:1/10. Calculate new profit sharing
ratio after E′s admission.
Answer
A's old share= 36/100
B's old share= 24/100
C's old share= 20/100
D's old share= 20/100
E is admitted for 20/100th share
= 80/100
New ratio among partners should be 3:4:2:1
A's new share= 3/10 * 80/100
= 24/100
B's new share= 4/10 * 80/100
= 32/100
C's new share= 2/10 * 80/100
= 16/100
D's new share= 1/10 * 80/100
= 8/100
New profit sharing ratio= 24:32:16:8:20
= 6:8:4:2:5
366. A and B are partners sharing profits and losses in the ratio of 2:1. They take C as a partner
for 1/5th share. The Goodwill Account appears in the books at its full value, Rs.15,000. C is to
pay proportionate amount as premium for goodwill, which he pays to A and B privately.
Pass necessary entries.
Answer
A's Capital a/c.... Dr. 10000
B's Capital a/c.... Dr. 5000
(Being goodwill written-off among the partners in the ratio 2:1)
Note:
Old profit sharing ratio= 2:1
A's Capital is debited by 2/3 * 15000= 10000
B's capital is debited by 1/3 * 15000= 5000
Goodwill paid privately is not shown in the books.
367. A and B are partners sharing profits and losses in the ratio of 2:5. They admit C on the
condition that he will bring in Rs.14,000 as his share of goodwill in cash, to be distributed
between A and B. C′s share in the future profits or losses will be 1/4th. What will be the new
profit-sharing ratio, and what amount of goodwill brought in by C will be received by A and B?
Answer
(i) New profit sharing ratio:
A's old ratio= 2/7

B's old ratio= 5/7
C is admitted for 1/4th share.
= 3/4
= 6/28
= 15/28
New Profit sharing ratio of partners= 6:15:7
(ii) Distribution of Goodwill:
A's share= 2/7 * 14000
= 4000
B's share= 5/7 * 14000
= 10000
368. B and C are in partnership sharing profits and losses as 3:1. They admit D into the
firm, D paying a premium of Rs.15,000 for 1/3rd share of the profits. As between
themselves, B and C agree to share the future profits and losses equally. Draft journal entries
showing appropriation of the premium money.
Answer
OURNAL
1. Cash a/c.... Dr. 15000
(Being premium for goodwill brought in by D)

(Being premium brought in by D transferred to B's capital)
3. C's Capital a/c... Dr. 3750

(Being goodwill charged from C due to his gain in profit sharing)
Working Note:
D is admitted for 1/3rd share
= 2/3
B and C agree to share profits equally in future.
Hence, B's new share= 2/3 * 1/2 = 1/3
C's new share= 2/3 * 1/2 = 1/3
B's sacrifice= 3/4- 1/3

= 5/12
C's gain= 1/4- 1/3
= -1/12
2. D brings in 15000 as goodwill for 1/3rd share in profit.
Therefore, total goodwill of the firm= 15000 * 3/1
= 45000
C's share of goodwill= 45000 * 1/12
= 3750
369. X and Y were partners sharing profits in the ratio of 3:2. They admitted P and Q as new
partner. X X surrendered 1/3rd of his share in favour of P and Y surrendered 1/4th of his share
in favour Q. Calculate new profit-sharing ratio X,Y,P and Q.
Answer
X's old share= 3/5
Y's old share= 2/5
P is admitted for 3/5 * 1/3= 3/15

Q is admitted for 2/5 * 1/4= 2/20
X's new share= 3/5- 3/15

= 6/15
Y's new share= 2/5- 2/20
= 6/20
P's share= 3/15
Q's share= 2/20
New Profit sharing ratio= 4:3:2:1
370. Give journal entries to record the following arrangements in the books of the firm:
(a) B and C are partners sharing profits in the ratio of 3:2. D is admitted, paying a premium
(goodwill) of Rs.2,000 for 1/4th share of the profits, shares of B and C remain as before.
(b) B and C are partners sharing profits in the ratio of 3:2. D is admitted, paying a premium
of Rs.2,100 for 1/4th share of profits which he acquires 1/6th from B and 1/12th from C.
Answer
(a) JOURNAL
1. Cash a/c.... Dr. 2000

2. Premium for Goodwill a/c..... Dr. 2000
To C's Capital a/c 800
(Being premium brought in by D distributed among the partners in the ratio of 3:2)
Working note:
Distribution of goodwill:
B's share= 3/5 * 2000 = 1200
C's share= 2/5 * 2000= 800
(b) JOURNAL
1. Cash a/c........ Dr. 2100

2. Premium for Goodwill a/c..... Dr. 2100
(Being premium brought in by D distributed among the partners in the ratio of 2:1)
Working note:
1. Sacrificing ratio:
B's sacrifice= 1/6
C's sacrifice= 1/12
Ratio= 2:1
2. Distribution of goodwill:
B's share= 2/3 * 2100 = 1400
C's share= 1/3 * 2100 = 700
371. X and Y are partners in a firm sharing profits in the ratio of 3:2. On 1stApril, 2018, they
admit Z as a new partner for 1/4th share in the profits. Z contributes the following assets
towards his capital and for his share of goodwill:
Stock Rs.60,000, Debtors Rs.80,000, Land Rs.1,00,000, Plant and machinery Rs.40,000. On the
date of admission of Z, the goodwill of the firm was valued at Rs.6,00,000.
Pass necessary Journal entries in the books of the firm on Z′s admission.
Answer
JOURNAL
1. Stock a/c.... Dr. 60000
Debtors a/c... Dr. 80000
Land a/c.... Dr. 100000
Plant and machinery a/c... Dr. 40000
(Being capital and premium for goodwill brought in by C in the form of assets)
2. Premium for Goodwill a/c.... Dr. 150000
(Being premium for goodwill distributed among partners in the ratio of 3:2)
Working Note:
1. Calculation of Z's share of goodwill:
Z's share of Goodwill= 600000 * 1/4= 150000
Z's share of capital = 280000 - 150000 = 130000
2. Distribution of premium for goodwill:
X's share= 3/5 * 150000= 90000
Y's share= 2/5 * 150000= 60000
372. A and B are partners sharing profits and losses in the proportion of 7:5. They agree to
admit C, their Manager, into partnership who is to get 1/6th share in the business. C brings
in Rs.10,000 for his capital and Rs.3,600 for the 1/6th share of goodwill which he
acquire 1/24th from A and 1/8th from B. The profits for the first year of the new partnership
amount to Rs.24,000. Pass necessary journal entries in connection with C′s admission and
apportion the profits between the partners.
Answer
JOURNAL
1. Cash a/c... Dr. 13600
(Being capital and premium for goodwill brought in by C)
2. Premium for Goodwill a/c.. Dr. 3600
(Being premium for goodwill brought in by C distributed among the partners in the ratio of 1:3)
3. Profit and Loss Appro, a/c.... Dr. 24000
(Being profit after C's admission distributed among the partners in the ratio of 13:7:4)
Working Note:
A's sacrifice= 1/24
B's sacrifice= 1/8
Hence, Sacrificing ratio= 1:3
2. Distribution of premium for goodwill in sacrificing ratio:

A's share= 3600 * 1/4= 900
B's share= 3600 * 3/4= 2700
3. Calculation of new profit sharing ratio:

A's new share= 7/12- 1/24= 13/24
B's new share= 5/12- 1/8= 7/24
C's share= 1/4
4. Distribution of profit in new profit sharing ratio:

A's share= 24000 * 13/24= 13000
B's share= 24000 * 7/24= 7000
C's share= 24000 * 4/24= 4000
373. Simrat and Manbir are partners in a firm. They being in a large unskilled labour is
employed. The employees largely lived in slum area. They, in order to improve their hygiene,
entered into agreement with a doctor to do routine medical check-up. They also set up a
canteen in the business premises to provide hygienic food at a subsidised rate. Identify the
values in their action.
Answer
Taking care of health through regular medical check-up; and helping employees by making available
hygienic food at a subsidized price.
374. Short answer type question:

For which share of goodwill a partner is entitled at the time of retirement?
Answer
At the time of retirement of a partner, the retiring partner is entitled to his share of goodwill, i.e., in
his profit sharing ratio in the firm. Goodwill is valued as per the agreement or partnership deed and
is compensated by remaining partners in their gaining ratio.

Why the value of goodwill need to be determined on retirement or death of a partner?
Answer
In case of a retirement or death of a partner, the continuing partner will gain in terms of profit
sharing ratio. Therefore, continuing partner are required to compensate the retiring partner or heirs
of deceased partner with his share of goodwill. For this purpose, goodwill need to be determined on
the date of the retirement or death of a partner and adjusted through the capital accounts of a
partner.

Give any one distinction between sacrificing ratio and gaining ratio.
Answer
Sacrificing ratio - It is that ratio in which the old partner have agreed to sacrifice their shares in profit
in favour of the new partner.
Gaining ratio - It is the ratio in which the continuous partner acquire outgoing partner's share.
The difference between sacrificing ratio and gaining ratio is :
Sacrificing ratio is calculated at the time of admission of a new partner, while gaining ratio is
calculated at the time of retirement of a partner.
377. According to Section 37 of the Indian Partnership Act, 1932, the interest payable to the
representative of deceased partner on the amount left by him will be ______________ .
A
6%p.a
B
10%p.a
C
The Bank Rate
D
None of these
Answer A
378. A and B are partners in firm sharing profits and losses in the ratio of 3:2. They admit C into
partnership for 1/5th share. C brings in Rs.30,000 as capital and Rs.10,000 as goodwill. At the
time of admission of C, goodwill appears in the Balance Sheet of A and B at Rs.3,000. The new
profit sharing ratio of the partners will be 5:3:2. Pass necessary Journal entries.
Answer
JOURNAL
1. A's Capital a/c.... Dr. 1800
(Being goodwill written off in the ratio of 3:2)
2. Cash a/c.. Dr. 40000
(Being premium for goodwill brought in by C distributed among the partners in the ratio of 1:1)
Working Note:
A's sacrifice= 3/5- 5/10= 1/10
B's sacrifice= 2/5- 3/10= 1/10
2. Distribution of premium for goodwill:

A's share= 10000 * 1/2= 5000
B's share= 10000 * 1/2= 5000
379. In the event of death of partner, the amount of General Reserve is transferred to partner's
capital Accounts in ______________ .
A
The new profit-sharing ratio.
B
The old profit-sharing ratio.
C
The capital ratio.
D
None of these
Answer B
380. X and Y are partners in a firm sharing profits in the ratio of 3:2 . They decided to share
profits equally w.e.f. 1st April, 2018 and also that they will use 10% of the net profit in keeping
the neighbourhood clean. Identify the values in their action.
Answer
Contribution towards the cleanliness of the surrounding and caring for the health and hygiene of
the employees.
381. A and B are partners in a business, sharing profits and losses in the ratio
of 1/3rd and 2/3rd. On 1stApril,2018, their capitals are Rs.8,000 and Rs.10,000 respectively.
On that date, they admit C in partnership and give him 1/4th share in the future
profits. C brings in Rs.8,000 as his capital and Rs.6,000 as goodwill. The amount of goodwill is
immediately withdrawn by the old partners in cash. Draft the Journal entries and show the
Capital Accounts of all the Partners. Calculate the proportion in which partners would share
profits and losses in future.
Answer
(i) JOURNAL
1. Cash a/c.... Dr. 14000

2. Premium for goodwill a/c... Dr. 6000
(Being premium for goodwill distributed among the partners in the ratio of 1:2)
To Cash a/c 6000
(Being amount of goodwill withdrawn by the partners)
(ii) PARTNER'S CAPITAL A/C
Dr. Cr.
Particulars A B C Particulars A B C
To Cash 2000 4000 Nil By Balance b/d 8000 10000 Nil
By Cash Nil Nil 8000
By Premium for
2000 4000 Nil
Goodwill
To Balance c/d 8000 10000 8000
1000
14000 8000 10000 14000 8000
0
(iii) Calculation of new Profit sharing ratio:
A's old share= 1/3

B's old share= 2/3
remaining share= 1-[1/4]= 3/4
A's new share= 1/3 * 3/4= 1/4

B's new share= 2/3 * 3/4= 2/4
C's share= 1/4
382. X and Y are partners in a firm sharing profits in the ratio of 3:2 With effect
from, 1st April, 2018 , they agreed to share profits equally. For this purpose, goodwill of the
firm is valued at Rs. 75,000 . You are required to fill up the following Journal entry :
Date Particulars L.F.Dr. (Rs.)Cr. (Rs.)
2018 ?
April
Y′s Capital A/c
...Dr
1 To X′s Capital A/c ?
(Being ?)
Answer
Dr.
Date Particulars L.F. Cr. (Rs.)
(Rs.)
2018
April
Y′sY′s Capital A/c ...Dr 7500

To X′sX′s Capital A/c
1 7500
(Being goodwill shared by the partners in the sacrificing ratio)
workings:
X: 1/2 - 3/5 = (1/10) sacrificing ratio
Y : 1/2 - 2/5 = 1/10 (gaining ratio)

State the ratio in which the partners share gain or loss from revaluation of assets and
liabilities.
Answer
A revaluation account is prepared at the time of reconstruction of the firm, all assets are
revalued, and all liabilities are reassessed. Increase in the value of asset or decrease in the value
of liabilities are credited to revaluation account and Decrease in the value of asset and increase
in the value of liability is debited to revaluation account. The difference between the two sides is
either profit or loss, which is distributed among old partners in old profit sharing ratio.
384. Distinguish between the sacrificing ratio and the gaining ratio among partners.
Answer
Basis of Difference Sacrificing ratio Gaining ratio
Objective It is calculated to ascertain It is calculated to ascertain
the share of profit and loss the share of profit and loss
given up by the existing acquired by the remaining
partners in favour of new partners (of the new firm in
partners/partner. case of retirement) from the
retiring or deceased
partner.
Meaning It is the ratio in which old It is the ratio in which
partners agree to sacrifice continuing partner acquires
their share of profit in the share of profit from
favour of new outgoing partners/partner.
partners/partner.
Time It is calculated at the time of It is calculated at the time of
admission of new retirement/death of old
partners/partner. partners/partner.
Calculation Sacrificing ratio = Old ratio – Gaining ratio = New ratio –
New ratio Old ratio
Effect It reduces the profit sharing It increases the profit
ratio of the existing sharing ratio of the
partners. remaining partners.
385. On the admission of Rao, it was agreed that the goodwill of Murty and Shah should be
valued at Rs.30,000. Rao is to get 1/4th share of profits. Previously Murty and Shah shared
profits in the ratio of 3:2. Rao cannot bring in any cash. Give Journal entries in the books of
Murty and Shah when: (a) there is no Goodwill Account and (b) Goodwill appears in the books
at Rs.7,500.
Answer
Working Note:
1. Calculation of Rao's share of goodwill= 30000 * 1/4= 7500
2. Adjustment of Rao's share of goodwill:
Murty's share= 7500 * 3/5= 4500
Shah's share= 7500 * 2/5= 3000
(a) When there is no Goodwill account:
JOURNAL
1. Rao's Capital a/c.... Dr. 7500

To Murty's Capital a/c 4500
To Shah's Capital a/c 3000
(Being Rao's share of goodwill charged to his capital and distributed among the partners in the ratio
of 3:2)
(b) Goodwill in the books appears at 7500:
JOURNAL
1. Murty's Capital a/c.... Dr. 4500
Shah's Capital a/c..... Dr. 3000
2. Rao's Capital a/c.... Dr. 7500
To Murty's Capital a/c 4500
To Shah's Capital a/c 3000
(Being Rao's share of goodwill charged to his capital and distributed among the partners in the ratio
of 3:2)
386. A and B are partners sharing profit and losses in the ratio of 3:2. They admit C into the
firm for 1/4th share in profits which he takes 1/6th from A and 1/12th from B. C brings in
only 60% of his share of firm's goodwill. Goodwill of the firm has been valued at Rs.1,00,000.
Pass necessary Journal entries to record this arrangement.
Answer
JOURNAL
1. Cash a/c... Dr. 15000
(Being 60% of premium for goodwill brought in by C)
2. Premium for goodwill a/c... Dr. 15000
C's Capital a/c.... Dr. 10000
(Being C's share of goodwill distributed among the partners in the sacrificing ratio)
Working Note:
A's sacrifice= 1/6
B's sacrifice= 1/12
Ratio= 2:1
Goodwill of the firm= 100000

C's share= 1/4 * 100000
= 25000
387. Kangli, Mangli and Sanvali are partners, sharing profits in the ratio of 4:3:2. Kangali retires.
Assuming Mangli and Sanvali will share profits in future in the ratio of 5:3, determine the
gaining ratio.
Answer
Old ratio (Kangli, Mangli and Sanvali) = 4:3:2
New ratio (Mangli and Sanvali) = 5:3
Gaining ratio = New ratio – Old ratio
Mangli’s Gain = 5/8 – 3/9 = 45/72 – 24/72 = 21/72
Sanvali’s Gain = 3/8 – 2/9 = 27/72 – 16/72 = 11/72
Gaining ratio = 21:11
388. A and B are partners sharing profits in the ratio of 2:1. They admit C for 1/4th share in
profits. C brings in Rs.30,000 for his capital and Rs.8,000 out of his share of Rs.10,000 for
goodwill. Before admission, goodwill appeared in books at Rs.18,000. Give Journal entries to
give effect to the above arrangement.
Answer
JOURNAL

2. Cash a/c.... Dr. 38000
(Being capital and part premium for goodwill brought in by C)
C's Capital a/c.... Dr. 2000
Working Note:
Distribution of premium for goodwill:
A's share= 10000 * 2/3= 6667
B's share= 10000 * 1/3= 3333
389. A and B were partners in a firm sharing profits and losses in the ratio of 3:2. They
admitted C as a new partner for 3/7th share in the profit and new profit sharing ratio will
be 2:2:3. C brought Rs.2,00,000 as his capital and Rs.1,50,000 as premium for goodwill. Half of
their share of premium was withdrawn by A and B from the firm. Calculate sacrificing ratio and
pass necessary Journal entries for the above transaction in the books of the firm.
Answer
JOURNAL
1. Cash a/c... Dr. 350000
To Cash a/c 75000
(Being half of the premium for goodwill withdrawn by the partners)

A's sacrifice= 3/5- 2/7= 11/35
B's sacrifice= 2/5- 2/7= 4/35
Working Note:
Distribution of goodwill:
A's share= 150000 * 11/15= 110000
B's share= 150000 * 4/15= 40000
390. A and B are partners sharing profits in the ratio of 3:2. Their books show goodwill
at Rs.2,000. C is admitted with 1/4th share of profits and brings in Rs.10,000 as his capital but
is not able to bring in cash for his share of goodwill Rs.3,000. Draft Journal entries.
Answer
JOURNAL
2. Cash a/c...... Dr. 10000
(Being capital brought in by C)
3. C's Capital.... Dr. 3000
(Being C's share of goodwill charged to his capital account and distributed among the partners in the
ratio of 3:2)
391. X,Y and Z are partners in a firm sharing profits and losses in the ratio in the ratio
of 3:2:1. Z retires from the firm on 31st march, 2018. On the date of Z′s retirement, the
following balance appeared in the books of the firm:
General Reserve Rs.1,80,000
Profit and Loss Account (Dr.) Rs.30,000
Workmen Compensation Reserve Rs.24,000 which was no more required.
Employee's Provident Fund Rs.20,000
Pass necessary Journal entries for the adjustment of these items on Z′s retirement.
Answer
Particulars L.F. Debit (Rs.) Credit (Rs.)

General Reserve A/c 1,80,000
Dr.
Workmen Compensation 24,000
Reserve A/c
Dr.
To X’s Capital A/c 1,02,000
To Y’s Capital A/c 68,000
To Z’s Capital A/c 34,000
(Being accumulated profit
distributed among partners in
old ratio)

X’s Capital A/c 15,000
Dr.
Y’s Capital A/c 10,000
Dr.
Z’s Capital A/c 5,000
Dr.
To Profit and Loss A/c 30,000
(Being debit balance in profit
and loss A/c distributed among
partners in old ratio)

Working note:
1. Calculation of share in credit balance of Reserve
Total credit balance of Reserves = General Reserve + WCF
= 1,80,000 + 24,000
= 2,04,000

X’s share = 2,04,000 X 3/6 = Rs. 1,02,000
Y’s share = 2,04,000 X 2/6 = Rs. 68,000
Z’s share = 2,04,000 X 1/6 = Rs. 34,000
2. Calculation of share in debit balance of Profit and Loss A/c
X’s share = 30,00 X 3/6 = Rs. 15,000
Y’s share = 30,000 X 2/6 = Rs. 10,000
Z’s share = 30,000 X 1/6 = Rs. 5,000
Note: Employer Provident Fund will not be distributed as it is a liability and not accumulated
profit.

392. Bhuwan and Shivam were partners in a firm, sharing profits in the ratio of 3:2. Their
capitals were Rs.50,000 and Rs.75,000 respectively. They admitted Atul on 1stApril, 2018 as
new partner for 1/4th share in the future profits. Atul brought Rs.75,000 as his capital.
Calculate the value of goodwill of the firm and record necessary Journal entries for the above
transactions on Atul's admission.
Answer
i) Calculation of goodwill of the firm:
Total capital of the firm after admission= 50000+75000+75000
= 200000
Total capital of the firm based on Atul's capital= 75000 * 4/1
= 300000
Hidden Goodwill= 300000- 200000= 100000
Atul's share of goodwill= 100000 * 1/4= 25000
(ii) JOURNAL
1. Cash a/c..... Dr. 75000

To Atul's Capital a/c 75000
(Being capital brought in by Atul)
2. Atul's Current a/c.... Dr. 25000
To Bhuwan's Capital a/c 15000
To Shivam's Capital a/c 10000
(Being goodwill distributed among the partners in the ratio of 3:2)
393. A,B and C are partners sharing profits in the ratio of 4/9:3/9:2/9. B retired and his capital
after making adjustment for reserves and gain (profit) on revaluation stands
at Rs.1,39,200. A and C agreed to pay him Rs.1,50,000 in full settlement of his claim. Record
necessary Journal entry for adjustment of goodwill if the new profit-sharing ratio is decided
at 5:3.
Answer
A's Capital A/c Dr. 5850
C's Capital A/c Dr. 4950
To B's Capital A/c 10800
(Being adjustment of B's share of goodwill made)
Working note:
(i) Calculation of B’s share of goodwill

A, B and C are sharing profit in ratio 4/9: 3/9: 2/9
B retires from the firm. Remaining partners agreed to pay him Rs. 1,50,000
B’s capital after making necessary adjustment Rs. 1,39,200
Therefore, hidden goodwill is Rs. 1,50,000 – Rs. 1,39,200 = Rs. 10,800
(ii) Gaining ratio
New profit sharing ratio between A and B is 5: 3
A’s gain = 5/8 – 4/9 = 13/72
C’s gain = 3/8 – 2/9 = 11/72
Gaining ratio = 13:11
Thus, B’s share of goodwill will be brought in by A and C in the gaining ratio 13:11 i.e.,
A is debited with 10,800 X 13/27 = Rs. 5,850
C is debited with 10,800 X 11/24 = Rs. 4,950
394. Verma and Sharma are partners in a firm sharing profits and losses in the ratio of 5:3. They
admitted Ghosh as a new partner for 1/5th share of profits. Ghosh is to bring in Rs.20,000 as
capital and Rs.4,000 as his share of goodwill premium. Give the necessary Journal entries,
when goodwill is paid privately.
A
Cash A/c Dr. 4000
B
Goodwill A/c Dr. 4000
To Cash A/c 4000
C
Goodwill A/c Dr. 4000
To Verma's Caital A/c 2500
To Sharma's Capital A/c 1500
D
No entry is required.
Answer D
395. Anil and Sunil are partners in a firm with fixed capitals
of Rs.3,20,000 and Rs.2,40,000 respectively. They admitted Charu as a new partner
for 1/4th share in the profits of the firm on 1stApril,2012. Charu brought Rs.3,20,000 as her
share of capital. Give the necessary journal entries on Charu's admission with regard to capital
and goodwill.
Answer
JOURNAL
1. Cash a/c.... Dr. 320000
To Charu's Capital a/c 320000
(Being capital brought in by Charu)
2. Charu's Current a/c........ Dr. 100000
To Anil's Capital a/c 50000
To Sunil's Capital a/c 50000
(Being Charu's share of goodwill adjusted through the current accounts)
Working Note:
Calculation of Hidden Goodwill:
Total Capital of the firm after admission= 320000+240000+320000
= 880000
Total Capital of the firm based on Charu's capital= 320000 * 4/1
= 1280000
Therefore, Hidden Goodwill= 1280000- 880000
= 400000
Charu's share of goodwill= 400000 * 1/4= 100000
396. A,B and C were partners in a firm sharing profits in the ratio of 8:4:3. B retires and his
share is taken up equally by A and C. Find the new profit-sharing ratio.
Answer
Old Ratio (A, B and C) = 8 : 4 : 3
B retires from the firm.
B's share taken by A and C in ratio of 1 : 1
Share taken by A = 4/15 X 1/2 = 2/15
Share taken by C = 4/15 X 1/2 = 2/15
New Ratio = Old Ratio + Share acquired from B
A's new share = 8/15 + 2/15 = 10/15 = 2/3
C's new share = 3/15 + 2/15 = 5/15 = 1/3
New profit (A and C) = 2 : 1
397. W,X,Y and Z are partners sharing profits and losses in the ratio of 1/3,1/6
,1/3 and 1/6 respectively. Y retires and W,X and Z decide to share the profit and losses equally
in future. Calculate gaining ratio.
Answer
Old ratio (W, X, Y and Z) = 1/3:1/6:1/3:1/6 or 2 : 1 : 2 : 1
New ratio (W, X and Z) = 1 : 1 : 1
Gaining ratio = New ratio - Old ratio
W's gain = 1/3 - 2/6 = 2/6 - 2/6 = 0
X's gain = 1/3 - 1/6 = 2/6 - 1/6 = 1/6
Z's gain = 1/3 - 1/6 = 2/6 - 1/6 = 1/6
Gaining ratio = 0 : 1 : 1
398. A,B and C were partners, sharing profits and losses in the ratio of 2:2:1. B decides to retire
on 31st March, 2018. On the date of his retirement, some of the assets and liabilities appeared
in the books as follows:
Creditors Rs.70,000; Building Rs.1,00,000; Plant and Machinery Rs.40,000; Stock of Raw
Materials Rs.20,000 Stock of Finished Goods Rs.30,000 and debtors Rs.20,000.
The following was agreed among the partners on B's retirement:
(a) Building to be appreciated by 20%.
(b) Plant and Machinery to be depreciated by 10%
(c) A provision of 5% on Debtors to be created for Doubtful Debt.
(d) Stock of Raw Material to be valued at Rs.18,000 and finished Goods at Rs.35,000
(e) An Old Computer previously written off was sold for Rs.2,000 as scrap.
(f) Firm had to pay Rs.5,000 to an injured employee.
Pass necessary Journal entries to record the above adjustments and prepare the Revaluation
Account.
Answer
Revaluation Account
Dr. Cr.
Particulars Rs. Particulars Rs.
To Plant and 4,000 By Building A/c 20,000
Machinery (1,00,000*20%)
A/c
(40,000*10%)
To Provision 1,000 By Stock of 5,000
for Doubtful Finished
Debts Goods, A/c
To Stock of 2,000 By Computer 2,000
Raw Materials A/c
A/c
To 5,000
Workmen’s
Compensation
A/c

To Profit
transferred
to:

A’s Capital A/c 6,000
B’s Capital A/c 6,000
C’s Capital A/c 3,000 15,000
27,000 27,000

Date Particulars L.F. Debit Credit
Building A/c 20,000
Dr.
Stock of Finished Goods 5,000
A/c Dr.
Computer A/c 2,000
Dr.
To Revaluation A/c 27,000
(Being increase in value of
assets and decrease in value of
liability is transferred to
Revaluation Account)

Revaluation A/c 12,000
Dr.
To Plant and Machinery A/c 4,000
To Provision for Doubtful 1,000
Debts A/c
To Stock of Raw Material A/c 2,000
To Workmen’s Compensation 5,000
A/c
(Being decrease in value of
assets and increase in value of
liability is transferred to
Revaluation Account)

Revaluation A/c 15,000
Dr.
To A’s Capital A/c 6,000
To B’s Capital A/c 6,000
To C’s Capital A/c 3,000
(Being Revaluation profit
transferred to Partner’s Capital
A/c)
399. Ramesh wants to retire from the firm. The gain (profit) on revaluation on that date
was Rs.12,000. Mohan and Rahul want to share this in their new profit-sharing ratio of 3:2.
Ramesh wants this to be shared equally. How is the profit to be shared? Given reasons.
Answer
Revaluation of assets and liabilities is made at the time of Ramesh’s retirement and not after his
retirement. Therefore, profits on revaluation will be distributed among all the partners in their old
profit sharing ratio. In the absence of partnership deed, profits are distributed among all the
partners in equal ratio.
Therefore, profit share of each partner = 12,000 X 1/3 = Rs. 4,000

Particulars L.F. Debit Rs. Credit Rs.
Revaluation A/c Dr. 12,000
To Ramesh’s Capital A/c 4,000
To Mohan’s Capital A/c 4,000
To Rahul’s Capital A/c 4,000
(Being revaluation profit
distributed among all the partners
in their old ratio)
400. A,B,C and D were partners in a firm sharing in 5:3:2:2 ratio. B and C retired from the firm. B

′s share was acquired by D and C′s share was acquired by A. Calculate new profit-sharing ratio
of A and D.
Answer
Old ratio (A, B, C and D) = 5: 3: 2: 2
B's profit share = 3/12
C's profit share = 2/12
B's share was acquired by D and C's share was acquired by A.
Therefore, D's new share = D's old share + Share of B = 2/12 +3/12 = 5/12
A's new share = A's old share + Share of C = 5/12 + 2/12 = 7/12
New profit share (A and D) = 7: 5
401. E and F were partners in firm sharing profits in the ratio of 3:1. They admitted G and will
share future profits equally. G brought Rs.50,000 in cash and machinery worth Rs.70,000 fir his
share of profit as premium of goodwill.
pass necessary Journal entries in the books of the firm.
Answer
JOURNAL
1. Cash a/c..... Dr. 50000

Machinery a/c... Dr. 70000
(Being cash and machinery brought in by G for his share of profit as premium for goodwill)
F's Capital a/c... Dr. 30000
To E's Capital a/c 150000
(Being premium for goodwill and F's gain transferred to E)
Working Note:
E's old ratio= 3/4
F's old ratio= 1/4
New ratio of firm after admission= 1:1:1
Sacrificing ratio = Old ratio - New ratio
E's sacrifice = 3/4- 1/3= 5/12
F's gain = 1/4- 1/3= -1/12
2. Total goodwill of the firm= 120000*3/1= 360000
F's gain= 360000 * 1/12= 30000
402. X and Y are partners sharing profits in the ratio of 3:2. They admitted Z as new partner
for 1/4th share of profits. At the time of admission of Z, investment appeared at Rs.80,000.
Half of the investments to be taken over by X and Y in their profit-sharing ratio at book value.
Remaining investment were valued at Rs.50,000. Pass the necessary Journal entries.
Answer
(i) X's Capital a/c... Dr. 24000
Y's Capital a/c... Dr. 16000
To Investment a/c 40000
(Being half of the investment taken over by the partners in the ratio of 3:2)
(ii) Investment a/c... Dr. 10000

To Revaluation a/c 10000
(Being revaluation of investment recorded)
(iii) Revaluation a/c.... Dr. 10000

(Being profit on revaluation distributed among the partners in the ratio of 3:2)
403. Mr. A commenced business with a capital Rs.2,50,000 on 1stApril,2013. During the five

years ended 31stMarch,2018, the following profits and losses were made:
31stMarch,2014 = Loss Rs.5,000
31stMarch,2015 = Profit Rs.13,000
During this period he had drawn Rs.40,000 for his personal use. On 1stApril,2018, he
admitted B into partnership on the following terms:
B to bring for his half share in the business, capital equal to A′s Capital on 31stMarch,2018 and
to pay for the one-half share of goodwill of the business, on the basis of three times the
average profit of the last five years. Prepare the statement showing what amount B should
invest to become a partner and pass entries to record the transaction relating to admission.
Answer
Capital as on April,1 2013
Less: Loss on 31st March, 2014
Add: Profit on 31st March, 2015
250000
(5000)
13000
17000
20000
25000
Less: Drawings 320000
(40000)
Capital as on March 31st, 2018 280000
Calculation of Goodwill:
Average profit= [-5000+13000+17000+20000+25000]/5
= 14000
Goodwill= 14000 * 3
= 42000
B's share of Goodwill= 42000 * 1/2= 21000
B's Capital= A's Capital= 280000
JOURNAL
1. Cash a/c..... Dr. 301000
(Being capital and premium for goodwill brought in by B)
(Being premium for goodwill transferred to A's Capital account)
404. X and Y are partners in firm sharing profits in the ratio of 3:2. They admitted Z as a new
partner and fixed the new profit-sharing ratio as 3:2:1. At time of admission of Z, Debtors and
Provision for Doubtful Debts appeared at Rs.50,000 and Rs.5,000 respectively All debtors are
good. Pass the necessary Journal entries.
Answer
(i) Provision for Doubtful Debts a/c.... Dr. 5000
(Being provision for doubtful debts written off)
(ii) Revaluation a/c... Dr. 5000

(Being profit on revaluation distributed among the partners in the ratio of 3:2)
405. A and B were partners in a firm sharing profit in 4:3 ratio. On 1stApril,2018, they

admitted C as a new partner. On the date of C′s admission, the Balance Sheet
of A and B showed a General Reserve of Rs.84,000 and a debit balance of Rs.8,400 in the
'Profit and Loss Account'. Pass necessary Journal entries.
Answer
(i) General Reserve a/c... Dr. 84000
(Being general reserve transferred to the partner's capital accounts in the ratio of 4:3)
(ii) A's Capital a/c... Dr. 4800
B's Capital a/c... Dr. 3600
To Profit and loss a/c 8400
(Being adjustment of profit and loss account in the ratio of 4:3)
406. Following was the Balance Sheet of A and B who were sharing profits in the ratio of 2:1 as
at 31stMarch,2018:
Building 25,000
Capital A/c:
Plant and Machinery17,500
A 15,000
Stock 10,000
B 10,000 25,000
Sundry Debtors 4,850
Sundry Creditors32,950
Cash in Hand 600
57,950 57,950
They agree to admit C into the partnership on the following terms:
(a) C was to bring in Rs.7,500 as his capital and Rs.3,000 as goodwill for 1/4th share in the firm.
(b) Values of the Stock and Plant and Machinery were to be reduced by 5%.
(c) A provision for Doubtful Debts was to be created in respect of Sundry Debtors Rs.375.
(d) Building Account was to be appreciated by 10%.
Pass necessary Journal entries to give effect to the arrangements. Prepare Profit and Loss
Adjustment Account (or Revaluation Account), Capital Accounts and Balance Sheet of the new
firm.
Answer
407. Give the Journal entry to distribute "Workmen Compensation Reserve" of Rs.72,000 at the
time of admission of Z When there is claim of Rs.48,000 against it. The firm has two
partners X and Y.
Answer
(i) Workmen Compensation Reserve a/c.... Dr 72000
To Workmen Compensation Claim a/c 48000
(Being adjustment of workmen compensation reserve partly for the claim and rest in the ratio of 1:1)
408. X,Y and Z are equal partners with capitals of Rs.1,500;Rs.1,750 and Rs.2,000 respectively.

They agree to admit W into equal partnership upon payment in cash Rs.1,500 for 1/4th share
of the goodwill and Rs.1,800 as his capital, both sums to remain in the business. The liabilities
of the old firm amounted to Rs.3,000 and the assets, apart from cash, consist of
Motors Rs.1,200, Furniture Rs.400, Stock Rs.2,650 and Debtors Rs.3,780. The Motors and
Furniture were revalued at Rs.950 and Rs.380 respectively.
Pass Journal entries to give effect to the above arrangement and also show Balance Sheet of
the new firm.
Answer
409. X,Y and Z are partners sharing profits and losses in the ratio of 5:3:2. They decided to
admit W for 1/6th share. Following is the extract of the Balance Sheet on the date of
admission:
General Reserve 36,000Advertisement Suspense A/c24,000
Contigency Reserve6,000
Profit and Loss A/c 18,000
Pass necessary Journal entries.
Answer
410. X and Y are partners in a firm sharing profits in the ratio of 3:2. They admitted Z as a new
partner for 1/4th share. At the time of admission of Z, Stock (Book Value Rs.1,00,000) is to be
reduced by 40% and Furniture (Book Value Rs.60,000) is to be reduced to 40%. Pass the
necessary Journal entries.
Answer
(i) General Reserve a/c.... Dr. 36000
Contingency Reserve a/c.... Dr. 6000
Profit and loss a/c... Dr. 18000
(Being undistributed reserves adjusted with the partners in the ratio of 5:3:2)
(ii) X's Capital a/c.... Dr. 12000

Y's Capital a/c... Dr. 7200
Z's Capital a/c... Dr. 4800
To Advertisement Suspense a/c 24000
(Being advertisement suspense distributed among the partners in the ratio of 5:3:2)
411. X and Y are partners sharing profits and losses in the ratio of 3:2. X is a non-working
partner and contributes Rs.20,00,000 as his capital. Y is a working partner of the firm. The
Partnership Deed provides for interest on capital @ 8% P.a. and salary to every working
partner @ Rs.8,000 per month. Net profit before providing for interest on capital and patner's
salary for the year ended 31st March, 2018 was Rs.80,000. Show the distribution of profit.
Answer
(i) Revaluation a/c... Dr. 76000
To Stock a/c 40000
To Furniture a/c 36000
(Being stock and furniture revalued)
(ii) X's Capital a/c... Dr. 45600

Y's Capital a/c.... Dr. 30400
(Being loss on revaluation distributed among the partners in the ratio of 3:2)
412. A and B are partners sharing profits and losses in ratio of 2:3 with capitals
of Rs.2,00,000 and Rs.1,00,000 respectively. On 1st October, 2017, A and B granted loans
of Rs.4,00,000 and Rs.2,00,000 respectively to the film. The Partnership Deed is silent as to the
interest on
Partner's Loan. Determine the amount of profit/loss for the year ended 31st March, 2018 in
each of the following cases to be distributed among partners:
Case 1: If the Profit before interest for the year amounted to Rs.25,000.
Case 2: If the Profit before interest for the year amounted to Rs.15,000.
Case 3: If the Loss before interest for the year amounted to Rs.25,000.
Answer
413. A and B are partners sharing profits and losses in the ratio of 3:2 with capitals
of Rs.4,00,000 and Rs.3,00,000 respectively. Interest on capital is agreed @ 5% p.a. B is to be
allowed an annual salary of Rs.30,000 which has not been withdrawn. Profit for the year
ending 31st March, 2018 prior to calculation of interest on capital but after charging B's salary
is Rs.1,20,000. A provision of 5% of the profit is to be made in respect of commission to the
manager. Prepare an account showing the appropriation of profit.
Answer
414. (Profit and Loss Appropriation Account). X and Y started business on 1st April, 2017 with
capitals of Rs.5,00,000 each As per the Partnership Deed, both X and Y are to get monthly
salary of Rs.10,000 each and interest on capitals @ 10% p.a. Drawings during the year
were X−Rs.60,000 and Y−Rs.1,00,000; interest being chargeable @ 10% p.a.
During the year, the firm incurred a loss of Rs.2,00,000.
Pass Journal entries for the above and prepare Profit and Loss Appropriation Account. The
Finn closes its accounts on 31st March, every year.
Answer
Journal Entries
Profit and loss App A/c Dr. 2,00,000
To profit and loss A/c 2,00,000
(Being loss transferred to profit and loss A/c)
X's capital A/c Dr. 3000

Y's capital A/c Dr. 5000
To Interest on drawings 8000
(Being interest charged)
Interest on drawings A/c Dr.8000

To profit and loss App A/c 8000
(Being Interest charged transferred to P&L App account)
X's capital A/c Dr. 96,000

Y's capital A/c Dr. 96,000
To Profit and loss App A/c 1,92,000
(Being loss transferred to partners capital A/c)

ParticularsAmount Particulars Amount
By Interest on drawings A/c
2,00,00
To net loss X -60,000*10%*6/12= 3000 8000
0
Y-1,00,000*10%*6/12=5000
By loss transfer to
96000
By X's capital A/c
By Y's capital A/c 96000
2,00,00
Total Total 2,00,000
0
415. (When drawings are made for a period of 6 months only). A,B and C are partners sharing
profits equally. A drew regularly Rs.6,000 in the beginning .of every month for the six months
ended 30th September, 2017. B drew regularly Rs.6,000 at the end of every month for the six
months ended 30th September, 2017. C drew regularly Rs.6,000 in the middle of every month
for the six months ended 30th September, 2017. Calculate interest on drawings @ 5% p.a.
when the books are closed on 31st March every year.
Answer
Average period = Months left after first drawings+Months left after last drawings/2
A B C
Average period= (6+1)/2 (5+0)/2 (5.5+0.5)/2
=3.5 months = 2.5 months = 3 months
Interest on drawings= (6000*6)*5%*3.5/12 (6000*6)*5%*2.5/12 (36000*5%*3/12)
= 525 =375 =450
416. Ayub and Amit are partners in M/s amit Papers sharing profits and losses equally.
Following trial balance is prepared from the books of account as at 31st March, 2018.
Prepare Trading Account, Profit and Loss Account and Profit and Loss Appropriation Account
for the year ended 31st March, 2018 and Balance Sheet as at that date accounting the
following adjustments:
(i) Stock as at 31st March, 2018 was Rs.50,000;
(ii) Rent is Rs.10,000 per month;
(iii) Depreciate Furniture and Fixture and Computers @ 20% p.a., Machinery @ 10% p.a.; and
(iv) Interest on Capitals is allowed @ 6% p.a.
Answer
417. (Profit and Loss Appropriation Account). A and B started a business on 1st April, 2017 with
capitals of Rs.3,00,000 and Rs.2,00,000 respectively. According to the Partnership Deed, B is to
get salary of Rs.5,000 per month, A is to get 10% commission on Profit after allowing salary
to B and interest is to be allowed on capitals @ 6% p.a. Profit-sharing ratio`between the two
partners is 3:2. During the year, the firm earned a profit of Rs.2,50,000.
Pass Journal entries for division of profits and prepare Profit and Loss Appropriation Account.
The firm doses its accounts on 31st March every year.
Answer
418. X, Y and Z are partners in a firm sharing profits in the ratio of 3:2:1 respectively. The firm
was dissolved on 1st March, 2013. After transferring assets (other than cash) and third party
liabilities to the 'Realisation Account' you are provided with the following information:
(a) There was a balance of Rs. 18,000 in the firm's Profit and Loss Account.
(b) There was an unrecorded bike of Rs. 50,000 which was taken over by X.
(c) Creditors of Rs. 5,000 were paid Rs. 4,000 in full settlement of accounts.
Pass necessary Journal entries for the above at the time of dissolution of firm.
Answer
419. A,B and C are partners sharing profits and losses equally. A and C have granted loan to the
firm on 1st October, 2016 of Rs.1,00,000 and Rs.1,50,000 respectively. It is agreed that interest
@9% p.a. will be paid on loan. Books of account of the firm are closed on 31st March every
year. Interest on loan is yet to be paid as on 31st March, 2017. You are required to pass
Journal entries in the books of account of the firm and prepare ledger accounts of the two
partners.
Answer
420. The Balance Sheet of Madhu and Vidhi who are sharing profits in the ratio of 2:3 as
at 31stMarch, 2016 is given below:
Madhu's Capital 5,20,000 Land and Building 3,00,000
Vidhi's Capital 3,00,000 Machinery 2,80,000
General 30,000 Stock 80,000
Debtors
Reserve 3,00,000
1,50,000 2,90,000
Bills Payable Less: Provision (10,000)
50,000
Bank
10,00,000 10,00,000
Madhu and Vidhi decided to admit Gayatri as a new partner from 1stApril 2016 and their new
profit-sharing ratio will be 2:3:5. Gayatri brought Rs.4,00,000 as her share of capital in cash.
(a) Goodwill of the firm was valued at Rs.3,00,000.
(b) Land and Building was found undervalued by Rs.26,000.
(c) Provision for doubtful debts was to be made equal to 5% of the debtors.
(d) There was a claim of Rs.6,000 on account of workmen compensation.
Prepare Revaluation Account, Partners Capital Account and the Balance Sheet of the reconstituted
firm.
Answer
421. A and B started business on 1st April, 2017 with capitals

of Rs.6,00,000 and Rs.4,00,000 respectively During the year, A introduced Rs.1,00,000 to the
firm as additional capital on 1st October, 2017. They withdrew Rs.50,000 per month for
household expenses against profits. Interest on capital is to be allowed @ 10% per annum.
Calculate interest payable to A and B for the year ended 31st March, 2018.
Answer
422. Ramesh and Naresh are partners in a firm. Their capitals as on 1st April,
2017 were Rs.150,000 and Rs.1,50,000 respectively. They share profits equally. On 1st July,
2017, they decided that their capitals should be Rs.2,00,000 each. The necessary adjustment in
the capitals were made by introducing or withdrawing capital. Interest on capital is allowed
@ 8% p.a. Compute interest on capital for both the partners for the year ended 31st March,
2018.
Answer
423. A and B are partners in a business and their capitals at the end of the year
were Rs.7,00,000 and Rs6,00,000 respectively. Calculate their opening capitals considering the
following information:
(a) Drawings of A and B for the year were Rs.75,000 and Rs.50,000 respectively.
(b) B introduced capital of Rs.1,00,000 during the year.
(c) Interest on capital credited to the Capital Accounts
of A and B were Rs.15,000 and Rs.10,000 respectively.
(d) Interest on drawings debited to the Capital Accounts
of A and B were Rs.7,500 and Rs.5,000 respectively.
(e) Share of profit credited to Capital Accounts was Rs.1,00,000 each.
Answer
424. Ram and Mohan are partners in a firm. They admitted Rakhi as a partner without capital
for 1/3rd share in the profit of the firm. She is blind by birth but having good management
qualities. The new partnership agreement provides for the following:
(i) 10% of the trading profit will be donated to Prime Minister's Relief Fund.
(ii) 5% of the trading profit will be donated to the National Blind Relief Fund.
(iii) Products will be sold at a discount of 15% on Maximum Retail Price to the people living
below poverty line.
(iv) New retail shops will be opened in the Naxal affected areas of the country.
(v) New jobs of sales persons will be reserved for the girls belonging to Scheduled Castes and
Scheduled Tribes.
Trading profit of the firm for the year ended 31st March, 2012 was Rs.10,00,000, identify any
four values considered by Ram, Mohan and Rakhi while preparing new Partnership Deed and
also prepare 'Profit and Loss Appropriation Account' of Ram, Mohan and Rakhi for the year
ended 31st March, 2012.
Answer
425. X and Y are partners sharing profits and losses in the ratio of 7:3. Their Capital Accounts as
at 1st April, 2017 stood at X−Rs.5,00,000;Y−Rs.4,00,000. The partners are allowed interest on
capital @ 5% .p.a. The drawings of the partners during the year ended 31st March, 2018
amounted to Rs.72,000 and Rs.50,000 respectively. The profit for the year before allowing
interest on capital and salary to Y @ Rs.5,000 per month amounted to Rs.8,00,000. 10% of the
divisible profit is to be set aside as General Reserve.
Prepare an account showing the allocation of profits, Partners' Capital and Current Accounts.
Answer
426. From the following Balance Sheet of X and Y, calculate interest on capital 5% pa. for the
year ended 31st March, 2018:
During the year ended 31st March, 2018, X′s drawings were Rs.10,000 and Y′s drawings
were Rs.30,000. Profit for the year ended 31st March, 2018 was Rs.60,000. The amount of
Reserve, i.e., Rs.40,000 is transferred from Current Year's profit to strengthen the financial
position of the firm.
Answer
427. P and Q were partners in a firm sharing profits equally. Their fixed capitals
were Rs.1,00,000 and Rs.50,000 respectively. The Partnership Deed provided for Interest on
Capital at the rate of 10% per annum. For the year ended 31st March, 2016, the profits of the
firm were distributed without providing Interest on Capital.
Pass necessary adjustment entry to rectify the error.
Answer
428. X and Y are partners sharing profits in the ratio of 3:2. On 31st March, 2017 after closing
the books of account, their capitals are Rs.10,00,000 and Rs.12,50,000 respectively. On 1st
May, 2016, X had introduced an additional capital
of Rs.2,50,000 and Y withdrew Rs.1,25,000 from his capital. On 1st October,
2016, X withdrew Rs.5,00,000 from his capital and Y introduced Rs.6,25,000. After closing the
accounts, it was discovered that Interest on Capital @ 6% p.a. has been omitted. During the
year ended 31st March, 2017, X′s drawings and Y′s drawings were Rs.2,50,000 and Rs.1,25,000.
Profits (before interest on Capital) during the year were Rs.5,00,000.
Calculate Interest on Capital if the capitals are (a) fixed and (b) fluctuating.
Answer
429. X and Y are partners sharing profits and losses in the ratio of 7:3. Their Capital Accounts as
at 1st April, 2017 stood at X−Rs.5,00,000;Y−Rs.4,00,000. The partners are allowed interest on
capital @ 5% p.a. The drawings of the partners during the year ended 31st March, 2018
amounted to Rs.72,000 and Rs.50,000 respectively. The profit for the year before allowing
interest on capital and salary to Y @ Rs.5,000 per month amounted to Rs.8,00,000. 10% of the
net profit is to be set aside as General Reserve.
Pass the Journal entries for Appropriation. Prepare Profit and Loss Appropriation Account for
the year ended 31st March, 2018, and Capital and Current Accounts of the partners.
Answer
430. X and Y are partners sharing profits and losses in the ratio of 2:3 with capitals
of Rs.2,00,000 and Rs.1,00,000 respectively. Pass the necessary Journal entry or entries for
distribution of profit/loss for the year ended 31st March, 2018 in each of the alternative cases:
Case 1. If Partnership Deed is silent as to the interest on capital and the profit for the year
is Rs.20,000.
Case 2. If Partnership Deed provides for interest on capital @ 6% p.a. and loss for the year
is Rs.15,000.
Case 3. If Partnership Deed provides for-interest on capital @ 6% p.a. and the profit for the
year is Rs.21,000.
Case 4. If Partnership Deed provides for interest on capital @ 6% p.a. as a charge on profit and
the profit for the year is Rs.20,000.
Answer
431. A and B are partners sharing profits and losses in the ratio of 3:2. At the end of the year,
i.e., on 31st March, 2018,(after division of the year's profit), they decided to take C into
partnership with effect from 1st April, 2015. As C was getting annual salary of Rs.45,000, he
had also advanced Rs.3,00,000 to the firm by way of a loan on which he is getting interest
@10%,p.a. During the three financial years, firm's profits after adjusting salary to C, interest on
loan and interest on the capital of the partners were:
Year Ended
31st March, 2016ProfitRs. 4,00,000
31st March, 2017Loss Rs. 2,00,000
31st March, 2018ProfitRs. 6,00,000
According to the new agreement, C is to be given annual salary of Rs.35,000 and 51th share in the
profits of the firm. C′s loan shall be treated as his capital from the beginning and similar to other
partners, his capital will carry interest @ 6% p.a.
Record necessary entries to give effect to the above arrangement.
Answer
432. Mannu and Shristhi are partners in a firm sharing profits in the ratio of 3:2. Following is
the Balance Sheet of the firm as on 31st March, 2018. (Ref. image)
Profit for the year ended 31st March, 2018 was Rs. 5,000 which was divided in the agreed
ratio, but interest @ 5% p.a. on capital and 6% p.a. on drawings was inadvertently omitted.
Adjust interest on drawings on an avarage basis for 6 months. Give the adjustment entry.
Answer
433. Anwar, Biswas and Divya are partners in a firm. Their Capital Accounts stood
at : Rs.8,00,000;Rs.6,00,000 and Rs.4,00,000 respectively on 1st April, 2013. They shared
profits and losses in the ratio of 3:2:1 respectively. Partners are entitled to interest on capital
@ 6% per annum and salary to Biswas and Divya @ Rs.4,000 per Month and Rs.6,000 per
quarter respectively as per the provisions of Partnership Deed.
Biswas's share of profit including interest on capital but excluding salary is guaranteed at a
minimurn of Rs.82,000 p.a. Any deficiency arising on that account shall be met by Divya. Profit
for the year ended. 31st March, 2014 amounted to Rs.3,12,000. Prepare Profit and Loss
Appropriation Account for the year ended 31st March, 2014.
Answer
434. X,Y and Z entered into partnership on 1st July, 2016 to share Profit and Losses in the ratio
of 3:2:1. X personally guaranteed that Z′s share of profit after charging interest on capital
@ 6% per annum would not be less than Rs.36,000 p.a. The capital contributed
by :X−Rs.2,00,000;Y−Rs.1,00,000 and Z−Rs.1,00,000. Profit for the year ended on 31st March,
2017 was Rs.1,38,000. Prepare Profit and Loss Appropriation Account.
Answer
435. A and B are partners in a firm sharing profits and losses in the ration of 3:2. Follwoing was
the Balance Sheet of the firm as at 31st March, 2018. (Ref. image)
Profit Rs.30,000 for the year ended 31st March, 2018 was divided between the partners
without allowing interest on capitals @ 12% p.a. and salary to A @ Rs.1,000 per month. During
the year, A withdrew Rs.10,000 and B Rs.20,000.
Pass necessary adjustment Journal entry and show your working dearly.
Answer
436. A,B and C were partners. Their capitals
were A−Rs.30,000;B−Rs.20,000 and C−Rs.10,000 respectively. According to the Partnership
Deed, they were entitled to an interest on capital at 5% p.a. In addition, B was also entitled to
draw a salary of Rs.500 per month. C was entitled to a commission of 5% on the profits after
charging the interest on capital, but before charging the salary payable to B. Net profit for the
year was Rs.30,000 distributed in the ratio of capitals without providing for any of the above
adjustments. The profits were to be shared in the ratio of 5:2:3.
Pass necessary adjustment entry showing the Workings clearly.
Answer
437. On 31st March, 2014, balances in the Capital Accounts of Eleen, Monu and Ahmad after
making adjustments for profits and drawings
were Rs.1,60,000,Rs.1,20,000 and Rs.80,000 respectively. Subsequently, it was discovered that
the interest on capital and drawings had been omitted.
(i) The profit for the year ended 31st March, 2014 was Rs.40,000.
(ii) During the year, Eleen and Monu each withdrew a total sum of Rs.24,000 in equal
instalments in the beginning of each month and Ahmad withdrew a total sum of Rs.48,000 in
equal instalments at the end of each month.
(iii) The interest on drawings was to be charged @ 5% p.a. and interest on capital was to be
allowed @ 10% p.a.
(iv) The profit-sharing ratio among the partners was 2:1:1. Showing your working notes clearly,
pass the necessary rectifying entry.
Answer
438. P,Q and R are partners sharing profits in the ratio of 5:4:1 respectively. R is guaranteed

that his share of profit in any year will not be less than Rs.50,000. The profit for the year
ending 31st March, 2018 is Rs.3,50,000. Amount of shortfall in the profits of R will be borne
by P and Q in the ratio of 3:2 respectiyely. Pass necessary Journal entry regarding deficiency
borne by P and Q.
Answer
Calculation of Share of profits
P's Share -3,50,000*5/10 = 1,75,000
Q's share - 3,50,000*4/10 = 1,40,000
R's share - 3,50,000*1/10 = 35,000
R's guaranteed share is 50,000. So,the deficiency of 15,000 (50,000-35,000) is to be contributed
by P and Q in the ratio of 3:2
P's contribution = 15,000*3/5=9,000
Q's contribution= 15,000*2/5 =6000
Journal entry is as follows:-

P's capital A/c Dr 9,000
Q's capital A/c Dr 6,000
To R's capital A/c 15,000
(Being deficiency contributed by partners)
439. P and Q were partners in a firm sharing profits in the ratio of 5:3. On 1st April, 2014 they
admitted R as a new partner for 1/8th share in the profits with a guaranteed profit
of Rs.75,000. The new profit-sharing ratio between P and Q will remain the same but they
agreed to bear any deficiency on account of guarantee to R in the ratio 3:2. The profit of the
firm for the year ended 31st March, 2015 was Rs.4,00,000.
Prepare Profit and Loss Appropriation Account of P,Q and R for the year ended 31st March,
2015.
Answer
Calculation of New profit sharing Ratio
Let total share be 1.
Share of incoming partner= 1-1/8=7/8
P's New Share= 7/8*5/8=35/64
Q's New Share =7/8*3/8=21/64
R's share = 8/64
Share of partners in profit :
P's share=4,00,000*35/64=2,18,750
Q's share=4,00,000*21/64=1,31,250
R's share=4,00,000*8/64=50,000
R's share of deficiency i.e 25,000 is to be borne by P and Q in the ratio of 3:2.
To profit transferred to :
P's capital A/c 2,18,750
Less: R's share (15,000) 203750
Q's capital A/c 1,31,250 By net profit 4,00,000
Less: R's share (10,000) 121250
R's capital A/c 50,000
Add: share from P&Q 25,000 75000
4,00,00
Total Total 4,00,000
0
440. A,B and C are partners'in a firm sharing profits and losses in the ratio of 4:2:1; It is
provided that C′s share in profit would not be less than Rs.37,500. The profit for the year
ended 31st March; 2018 amounted to Rs.1,57,500.
Pass Journal entries in the books of firm and prepare Profit and Loss Appropriation Account.
Answer
C's share of profit is (1,57,500*1/7) 22,500. So,the deficiency of (37,500-22,500) i.e 15,000 is to be
borne by A and B in the ratio of 4:2.
Journal Entries are:-
Profit and Loss A/c Dr. 1,57,500
To Profit and Loss appropriation A/c 1,57,500
(Being profit transferred to P&L appropriation account)
Profit and Loss Appropriation A/c Dr. 1,57,500
To A's capital A/c 90,000
To B's capital A/c 45,000
To C's capital A/c 22,500
(Being actual distribution of profit)
A's capital A/c Dr. 10,000
B's capital A/c Dr. 5000
(Being deficiency of C,contributed by A and B)

To A's capital A/c 90,000
Less:C's deficiency (10,000)
To B's capital A/c 45,000
Less: C's deficiency (5000)
1,57,500 By Net profit 1,57,500
Add: share from
A&B 15,000
Total 1,57,500 Total 1,57,500
441. State any two methods of valuing goodwill.

Answer
Years’ Purchase of Average Profit Method:
Under this method, average profit of the last few years is multiplied by one or more number of years
in order to ascertain the value of goodwill of the firm. How many years’ profit should be taken for
calculating average and the said average should be multiplied by how many number of years — both
depend on the opinions of the parties concerned. The average profit which is multiplied by the
number of years for ascertaining the value of goodwill is known as Years Purchase. It is also called
Purchase of Past Profit Method or Average Profit Basis Method.
Years’ Purchase of Weighted Average Method:

This method is the modified version of Years’ Purchase of Average Profit Method. Under this
method, each and every year’s profit should be multiplied by the respective number of weights, e.g.
1, 2, 3 etc., in order to find out the value of product which is again to be divided by the total number
of weights for ascertaining the weighted average profit. Therefore, the weighted average profit is
multiplied by the years’ purchase in order to ascertain the value of goodwill. This method is
particularly applicable where the trend of profit is rising.
442. Goodwill of the firm is valued at two years purchase of the average profit of last four
years. The total profits for last four years is Rs.40,000.
Calculate the goodwill of the firm.
Answer
Goodwill of last four years : 40,000 / 4
: 10,000
Goodwill at two years purchase : 10,000 x 2
: 20,000
443. Ankit, Suchita and Chandru are partners in a firm sharing profits and losses in the
ration 4:3:2. Ankit retires from the firm. Suchit and Chandru agreed to share in the ratio
of 5:3 in future.
Calculate gain ration of suchita and chandru.
Answer
gain ratio = new ratio - old ratio
for suchita =
=5/8 - 3/9
= new ratio multiply by 9 and old ratio multiply by 8
so, = 45/72 - 24/72
= 21/72
for chandru =
= 3/8 - 2//9
= nwe ratio multiply by 9 and old ratio multiply by 8
so, 27/72 - 16/72
= 11/72
444. Swarna, Swapna and Vidya are partners in a firm sharing profits and losses in the ratio
of 4:3:2. Vidya retires fro the firm. Swarna and Swapna agreed to share equally in future.
Calculate the gain ratio of swarna and Swapna.
Answer
gain ratio = new ratio - old ratio
for Swarna =
= 1/2 - 4/7
= new ratio multiply by 7 and old ratio multiply by 2
= 7/14 - 8/14
= (-1)/14
for swapna =
1/2 - 3/7
same here new ratio multiply by 7 and old ratio multiply by 2
so, 7/14 - 6/14
= 1/14
445. Anurag and Bhawana entered into partnership on 1.4.2014. On 1.1.2015 they admitted
Monika as a new partner for 3/10th share in the profits which she acquired equally from
Anurag and Bhawana. The new profit sharing ratio of Anurag, Bhawana and Monika was 4:3:3.
Calculate the profit sharing ratio of Anurag and Bhawana at the time of forming the
partnership.
Answer
446. Chhavi and Neha were partners in the firm sharing profits and losses equally. Chhavi
withdrew a fixed amount at the beginning of each quarter. Interest on drawing is
charged @6%p.a. At the end of the year, interest on Chhavi's drawing amounted
to Rs.900.Pass necessary journal entries for charging interest on drawings.
Answer
447. Raja, Rani and Mantri are partners sharing profits and losses in the ratio of 2:2:1. The
Balance sheet of the firm as on 31.03.2017 was as follows:
Balance sheet as on 31.03.2017
Liabilities Rs Assets Rs
Creditors
40,000 Cash 20,000
Bills
20,000 Stock 40,000
payable
Debtors 90,000
Capitals:
1,00,000Building 1,00,000
Raja
60,000 Plant and Machinery 10,000
Rani
40,000
Mantri
2,60,000 2,60,000
Raja died on 31.12.2017. His executors are entitled to the following :
a) His capital on the date of his death.
b) His share of profit till the date of his death. Estimated profit for the current years is Rs.80,000.
c) Interest on capital is allowed at 10% p.a.
d) His drawing till death amounted to Rs.20,000.
e) Salary of Raja is Rs.1,000 per month.
Prepare Raja's capital account.
Answer
448. Three Chartered Accountants X,Y and Z form a partnership sharing profits and losses in the
ratio of 3:2:1 subject to the following conditions:
(1) Z′s share of profits is guaranteed to be not less than Rs.30,000 p.a.
(ii) Y gives a guarantee to the effect that the gross fee earned by him for the firm shall not be
less than the average gross fee earned by him during the preceding five years when he was
carrying on the profession alone (the average ofwhich works out at Rs.50,000).
Profit for the first year (year ended 31st March, 2018) of the partnership is Rs.1,50,000. The
gross fee earned by Y for the firm is Rs.32,000.
Prepare Profit and Loss Appropriation Account after giving effect to the above.
Answer
449. Write the journal entry to close Revaluation account when there is profit .
Answer
The profit on revaluations will be transferred to old partners’ capital accounts in the old profit
sharing ratio:
Revaluation A/c Dr.
To Old Partner's Capital a/c’s
450. Deepak, Farukh and Lilly were partners in a firm sharing profits in the ratio of 3:2:1.
On 28.2.2015 Farukh retired from the firm. On Farukh's retirement there was a balance
of Rs12,000 in Workmen's Compensation Reserve which was no more required. On Farukh's
retirement this amount will be:
A
Debited to the capital accounts of the partners in their profit sharing ratio.
B
Credited to the capital accounts of the partners in their profit sharing ratio.
C
Credited to the capital accounts of Deepak and Lilly in their profit sharing ratio.
D
Credited to the capital account of Farukh.
Answer B
451. Sheenu, Shankar and Sharan are partners sharing profits and losses in the ratio of 4:3:3.
Their capital balance on 01-04-2016 stood at Rs.1,00,000;Rs.80,000 and Rs.50,000 respectively.
Sheenu died on 01-10-2016. The partnership deed provides the followings:
a) Interest on capital at 12% p.a.
b) He had withdrawn Rs.5,000 upto date death.
c) Sheenu's share of goodwill Rs.5,000
d) His share of profit upto the date of death on the basis of previous year profits. Previous year
profits Rs.20,000
Prepare Sheenu's Executors account.
Answer
452. A and B are partners sharing profits and losses in the ratio of 6:4. They admit 'C' into the
partnership, giving him 206th share, which he acquires in the proportion
of 204 and 202 from A and B.
Calculate the new profit sharing ratio of all the partner's.
Answer
453. M/s. TB is a partnership firm with the partners A , B and C sharing profits and losses in the
ratio 3:2:5. The balance sheet of the firm as on 30th June, 2020 was an under :
Balance Sheet of M/s. TB as on 30−6−2020
Amount Amount
Liabilities Assets
(Rs.) (Rs.)
A's capital A/c 1,24,000 Land 1,20,000
B's Capital A/c 96,000 Building 2,20,000
C's Capital A/c 1,60,000 Plant & Machinery4,00,000
Long Term Loan4,20,000 Investments 42,000
Bank Overdraft 64,000 Inventories 1,36,000
Trade Payables 2,13,000 Trade receivables 1,59,000

10,77,000 10,77,000
It was mutually agreed that B will retire from partnership and in his place D will be admitted as a
partner with effect from 1st July, 2020. For this purpose, following adjustments are to be made:
(a) Goodwill of the firm is to be values at Rs.3 lakhs due to the firm's location advantage but the
same will not appear as an asset in the books of the reconstituted firm.
(b) Building and plant & Machinery are to be valued at 95% and 80% of the respective balance
sheet values. Investments are to be taken over by the retiring partner at Rs.46,000. Trade
receivables are considered good only up to 85% of the balance sheet figure. Balance to be
considered bad.
(c) In the reconstituted firm, the total capital will be Rs.4 lakhs, which will be contributed by A , C
and D in their new profit sharing ratio, which is 3:4:3.
(d) The amount due to retiring partner shall be transferred to his loan account.
You are required to prepare Revaluation Account and Partners' Capital; Accounts after
reconstitution, along with working notes.
Answer
454. Shobha, Sudha and Rathna are partners. Sharing profits and losses in the ratio of 2:2:1.
Their Balance sheet as on 31.3.2018 was as follows:
Balance Sheet as on 31.3.2018
Sundry
30,000 Cash in hand 10,000
Creditors
Capitals:
Shobha 15,000
Debtors 25,000
Sudha 25,000
Rathna 30,00070,000
Reserve fund 15,000 Stock 40,000
Plant and Machinery40,000
1,15,000 1,15,000
Rathna died on 30.06.2018. Her executor's should be entitled to:
a) Her capital on the date of last Balance sheet.
b) Her share of reserve fund on the date of last Balance sheet
c) Her share of profit up to the date of death, on the basis of previous year's profit. Previous year
profit is Rs.20,000.
d) Her share of goodwill. Goodwill of the firm is valued at Rs.40,000
e) Interest on capital at 10% p.a.
You are required to ascertain amount payable executors of Rathna by preparing Rathna's capital
account.
Answer
Dr Rathana capital account Cr
Particulars Amt Particulars Amt
To goodwill a/c 8000 By bal b/d 30000
2675
To Rathana executors a/c By R & S 3000
0
By P & L A/c 1000
By Int. On capital 750

3475
34750
0

Dr Rathana executors account Cr

Particulars Amt Particulars Amt
By Rathana
To bal c/d 26750 26750
A/c

26750 26750
455. Mohan, Vinay and Nitya were partners in a firm sharing profits and losses in the
proportion of 21,31 and 61 respectively. On 31st March,2018, their Balance Sheet was as
follows.
Balance Sheet of Mohan, Vinay and Nitya as at 31st March, 2018
Liabilities Amount Assets Amount

Rs. Rs.
Creditors 48,000 Cash at Bank 31,000
Employees' Provident Fund1,70,000Bills Receivable 54,000
Contingency Reserve 30,000 Book Debts 63,000
Capital: Less: Provision
Mohan 1,20,000 for doubtful debts 2,000 61,000
Vinay 1,00,000 Plant and Machinery 1,20,000
Nitya 90,000 3,10,000Land and Building 2,92,000
5,58,00
5,58,000
0
Mohan retired on the above date and it was agreed that :
(i) Plant and machinery will be depreciated by 5%.
(ii) An old computer previously written off was sold for Rs.4,000.
(iii) Bad debts amounting to Rs.3,000 will be written off and a provision of 5% on debtors for bad
and doubtful debts will be maintained.
(iv) Goodwill of the firm was valued at Rs.1,80,000 and Mohans share of the same was credited in
his account by debiting Vinays and Nityas accounts.
(v) The capital of the new firm was to be fixed at Rs.90,000 and necessary adjustments were to be
made by bringing in or paying off cash as the case may be.
(vi) Vinay and Nitya will share future profits in the ratio of 3:2.
Prepare Revaluation Account, Partners Capital Accounts and the Balance Sheet of the
reconstituted firm.
Answer
456. What is the time limit to write off intangible assets in Accounting standard 26?
Answer
As per AS-26, intangible assets should be written off as early as possible but not exceeding their
estimated life, which normally should not be beyond 10 years.
457. Prepare Executor's Loan Account with imaginary figures showing the repayment of loan in
two annual equal installments along with interest.
Answer
458. R,S,G are three partners sharing profit and loss in the ration of 8:7:5,S retires and his share
of profit is taken by R,G in the ratio of 1:2. Find the new profit sharing ratio.
A
2:1
B
31:25
C
29:31
D
1:2
Answer B
459. The amount which a new partner pays for the sacrifice made by other partners is called
_______.
A
capital reserve
B
goodwill
C
reserve capital
D
reserve
Answer B
460. A,B, and C are three partners sharing profit and loss in the ratio of 4:3:2. A retires and B and
C decides to share future profit in the ratio of 2:1. Find the gaining ratio.
A
1:3
B
1:1
C
2:1
D
3:1
Answer D
461. A,B and C ate three partners sharing profit and loss in the ratio of 3:2:1.B retires from the
firm . What is the gaining ratio of the remaining partners?
A
3:1
B
1:2
C
2:1
D
1:3
Answer A
462. Goodwill brought in by a new partner is a _______.

A
tangible asset
B
fictitious asset
C
dummy asset
D
intangible but real asset
Answer D
463. Which of these terms is not true in respect of goodwill?

A
Real Assets
B
Intangible Assets
C
Fixed Assets
D
Fictitious Assets
Answer D
464. A,B and C are three partners sharing profit and loss in the ratio of 3:2:1. B retires from the
firm. What is the new profit sharing ratio of the remaining partners?
A
1:3
B
3:1
C
2:3
D
3:2
Answer B
465. A,B and C are three partner sharing profit and loss 3:2:1 A dies on 30th June, 2012, If the
total profit for the year ending 31st march ,2013 amounted to Rs. 30,000. What would be the
share of profit to be credited to A's A/c ?
A
Rs.3750
B
Rs.5000
C
Rs.8000
D
Rs.5500
Answer A
466. A company purchased a new Plant and Machinery worth RS.1 crore from XYZ Associates and
issued him 1100000 equity shares of Rs.10 each. The excess of consideration over and above the
purchase price will be treated as ___________.
A
goodwill
B
discount
C
premium
D
capital reserve
Answer A
467. X,Y and Z are three partners in a firm. They are sharing profit and loss in the ratio of 2:2:1. Y
retires from the firm on 31st March. The firm decided not to raise goodwill A/c in the books of
a/c. What entry will be made for the treatment of goodwill at the time of retirement of Y?
A
Debit X and Z ,Credit Y (for share of Y in the gaining ratio)
B
Goodwill A/c Dr, Credit Y's Capital A/c
C
Goodwill A/c Dr,Credit X,Y and Z Capital A/c
D
Goodwill A/c Dr. Credit X and Z A/c
Answer A
468. Goods worth Rs.2000 distributed as free sample, which A/c will be debited _________.
A
Trading A/c.
B
Profit and loss appropriation A/c.
C
Sale promotion expenses A/c.
D
Charity A/c.
Answer C
469. _______ can be described as the sum of those intangible attributes or benefits enjoyed by
the enterprise which contributes to its success.
A
Research and Development
B
Goodwill
C
D
Intangible assets
Answer B
470. The need for valuation of goodwill arises in all the following situations except
A
Admission of a partner
B
Retirement of a partner
C
Change in profit sharing ratio
D
Illness of a partner
Answer D
471. Which of these is an essential qualification to be a partner of a firm?

A
High net worth Individual.
B
Graduate in Business Administration.
C
Must be competent to contract.
D
Possessing Aadhar Card.
Answer C
472. The term "person" for the purpose of a partnership agreement does not include a
__________.
A
Firm
B
Senior citizen
C
Pardanashin women
D
Non-Pan card holder
Answer A
473. A and B are two partners in a firm having share capital of Rs. 13,000 and Rs.17,000
respectively. C is admitted for 1/3rd share of profit for which he is to bring Rs.20,000 for his
share of capital. What is the goodwill of the firm?
A
Rs.9,000
B
Rs.10,000
C
Rs.8,000
D
Rs.11,000
Answer B
474. Select the odd one out.

A
No requirement for minimum number of members.
B
No limit on number of members.
C
Governed by Hindu law.
D
Minor cannot be admitted.
Answer A
475. A partnership firm can be formed with a minimum share capital of Rs. ____________.
A
Rs.50,000
B
Rs.5,00,000
C
Rs.1,00,000
D
Not fixed
Answer D
476. A third party with whom a partner has agreed to share the profit accruing to him from a
partnership is known as _________.
A
Partner in profits
B
Dormant partner
C
Nominal partner
D
Sub- partner
Answer D
477. A, B and C are sharing profit and loss in the ratio of 3:2:1, D is admitted into the firm with
1/7th share of profit which he purchases from A.How the goodwill brought in by D would be
distributed amongst the old partners on the facts given in question?
A
3:2:1
B
Equally
C
In capital ratio
D
Only A would get goodwill
Answer D
HARD
1. Goodwill means ____________.

A
good name or reputation of the business
B
it is an intangible real asset
C
the capacity of a business to earn profits in future
D
All the Above
Answer D
2. Gaining ratio is equal to _________.

A
New ratio − Old ratio
B
New ratio + Old ratio
C
New ratio × Old ratio
D
New ratio + Sacrificing ratio
Answer A
3. The formula of capitalisation method is ___________.

A
Profit(adjusted)/ 100
B
Total Profit/ Adjusted Profit
C
Adjusted Profit/ Total Profit ×100
D
Profit (Adjusted)/ Normal rate of Return ×100
Answer D
4. According to the value of goodwill, the type of customers may be divided into
________________.
A
Cats, dogs and mice
B
Cats and mice
C
Dogs and mice
D
Dogs and horses
Answer A
5. Under the memorandum revaluation method ___________.
A
the new partner does not bring cash for his share of goodwill
B
the new partner brings cash for his share of goodwill
C
goodwill is raised in the books, and then is immediately written off
D
None of the Above
Answer C
6. A admitted as a new partner for 1/ 4 share of future profits, fails to bring in cash of Rs. 5,000
towards goodwill but the existing (old) partners B and C sharing profits in the ratio of 3 : 2 raise
goodwill account at its full value. Therefore, partners will be credited for goodwill as:
A
B = Rs. 3,000, C = Rs. 2,000, A = Nil
B
B = Rs. 9,000, C = Rs. 6,000, A = Rs. 5,000
C
B = Rs. 12,000, C = Rs. 8,000, A = Nil
D
B = Rs. 2,250, C = Rs. 1,500, A = Rs. 1,250
Answer C
7. The ratio at which the continuing partners take up the retiring partner's share is _________.
A
gaining ratio
B
sacrificing ratio
C
profit sharing ratio
D
loss sharing ratio
Answer A
8. A and B are partners sharing profits in the ratio of 7:3. C is admitted for 3/7 share in the profits,
the new profit sharing ratio among the partners will be ____________________.
A
A : B : C :: 14 : 6 : 15
B
A : B : C :: 7 : 6 : 7
C
A : B : C :: 7 : 3 : 3
D
A : B : C :: 5 : 3 : 3
Answer A
9. Ram and Shyam are partners in a firm with capital of Rs 4,80,000 and Rs 3,10,000, respectively.
They admitted Ganesh as a partner with l/4th share of profit. Ganesh brings Rs 3,00,000 as his
capital. Ganesh's share of goodwill will be __________.
A
Rs.1,10,000
B
Rs.27,500
C
Rs.17,500
D
Rs.70,000
Answer B
10. Capital employed in a business is Rs. 1,50,000. Profits are Rs. 50,000 and the normal rate of
profit is 20%. The amount of goodwill as per Capitalisation Method would be:
A
Rs. 1,00,000
B
Rs. 1,50,000
C
Rs. 2,00,000
D
Rs. 3,00,000
Answer A
11. ___________ method is followed when the new partner does not bring in his share of goodwill
in cash.
A
Premium
B
Revaluation
C
Reconstruction
D
Both a and b
Answer B
12. An example of an intangible asset is:

A
Goodwill
B
Debit balance of Profit and Loss Account
C
Preliminary expenses
D
Answer A
13. The need for valuation of goodwill arises at the time of _______ of a business.
A
purchase
B
sale
C
agreement
D
closure
Answer B
14. If the business is centrally located or is at a place having heavy customer traffic, then the
goodwill tends to be ______.
A
low
B
high
C
same
D
Answer
Answer B
15. Ashok, Babu and Chetan were partners in a firm sharing profits in the ratio of 4:3:3. The firm
closes its books on 31 st March every year. On 31 st December, 2016 Ashok died. The partnership
deed provided that on the death of a partner his executors will be entitled to the following :
(i) Balance in his capital account. On 1/4/2016, there was a balance of Rs.90,000 in Ashok's Capital
Account.
(ii) Interest on capital @12% per annum.
(iii) His share in the profits of the firm in the year of his death will be calculated on the basis of rate
of net profit on sales of the previous year, which was 25%. The sales of the firm till 30st December,
2016 were Rs.4,00,000.
(iv) His share in the goodwill of the firm. The goodwill of the firm on Ashok's detah was valued at
Rs.4,50,000.
The partnership deed also provided for the following deductions from the amount payable to the
executor of the deceased partner:
(i) His drawings in the year of his death. Ashok's drawings till 31/12/2016 were Rs15,000.
(ii) Interest on drawing @12% per annum which was calculated as Rs.1,500.
The accountant of the firm prepared Ashok's Capital Account to be presented to the executor of
Ashok but in a hurry he left in incomplete. Ashok's Capital Account as prepared by the firm's
accountant is given below :
Dr. Ashok's Capital Account Cr.
Date Particulars Amount
(Rs) Date Particulars Amount
(Rs)
2016 2016
Dec 31 ..... 15,000 April 1 ..... 90,000
Dec 31 ..... ..... Dec 31 .... 8,100
Dec 31 ..... ..... Dec 31 ..... 40,000
Dec 31 ..... 90,000
Dec 31 ..... 90,000
3,18,100 3,18,100
You are required to complete Ashok's Capital Account.
Answer
16. The important methods of valuation of goodwill are:

A
Average Profits Method
B
Super Profits Method
C
Capitalisation Method
D
All of the above
Answer D
17. Under super profit basis, goodwill is calculated by:

A
No. of years purchased multiplied with average profits
B
No. of years purchased multiplied with super profits
C
D
Answer B
18. Pass necessary journal entries on the dissolution of a partnership firm in the following cases :
(i) Dissolution expenses were Rs.800.
(ii) Dissolution expenses Rs.800 were paid by Prabhu, a partner.
(iii) Geeta, a partner, was appointed to look after the dissolution work, for which she was allowed a
remuneration of Rs.10,000. Geeta agreed to bear the dissolution expenses. Actual dissolution
expenses Rs.9,500 were paid by Geeta.
(iv) Janki, a partner, agreed to look after the dissolution work for a commission of Rs.5,000. Janki
agreed to bear the dissolution expenses. Actual dissolution expenses Rs.5,500 were paid by Mohan,
another partner, on behalf of Janki.
(v) A partner, Kavita, agreed to look after the dissolution process for a commission of Rs.9,000. She
also agreed to bear the dissolution expenses. Kavita took over furniture of Rs9,000 for her
commission. Furniture had already been transferred to realisation account.
(vi) A debtor, Ravinder, for Rs.19,000 agreed to pay the dissolution expenses which were Rs.18,000
in full settlement of his debt.
Answer
19. Under average profit basis, goodwill is calculated by:

A
No. of years purchased multiplied with past average profits
B
No. of years purchased multiplied with past super profits
C
D
Answer A
20. Excess of actual profit over normal profit is called

A
Normal profit
B
Super profit
C
Capitalized profit
D
All of the above
Answer B
21. A,B and C are three partners sharing profit and loss in the ratio of 3:2:1. B retire from the firm.If
B's share of profit is purchased by C. What will be new profit sharing ratio?
A
1:2
B
2:1
C
3:1
D
3:2
Answer C
22. There are three partners P,Q and R sharing profit and loss in the ratio of 4:5:3. Q retires, and the
remaining partners agreed to share profit and loss in future in the ratio of 7:8. What is the
gaining ratio of the old partners?
A
8:3
B
5:4
C
7:8
D
3:5
Answer A
23. X,Y and Z are three partners in a firm.They are sharing profit and loss in the ratio of 3:2:1.On
11th Jan Y died. The firm decided to value goodwill based on 3 years purchase of weighted
average of 5 years profit.The trading profit of the firm for the past five years before charging
interest on capital was as under Rs.10,000,Rs.9,000,Rs.11,000,Rs.7,000,Rs.8,000. The capital of
the firm stood Rs.50,000 and interest on capital of the firm stood Rs.50,000 and interest on
capital is given at 8%. What is Y's share of goodwill?
A
Rs.15,000
B
Rs.9,000
C
Rs.10,000
D
Rs.7,500
Answer B
24. The amount due to the deceased partner is paid to his __________.
A
friends
B
wife
C
executor
D
father
Answer C
25. On retirement /death of a partner new Profit sharing ratio of remaining partner _________.
A
old ratio + gaining ratio.
B
old ration+ sacrificing ratio.
C
1/No. of partners.
D
old ratio - sacrificing ratio.
Answer A
26. At the time of admission when goodwill account is not being opened in the books of account,
credit is given to the old partner in what ratio?
A
B
C
Sacrificing ratio
D
Equally
Answer C
27. The reputation of a business expressed in terms of money.

A
Capital
B
Income
C
Goodwill
D
Copy rights
Answer C
28. Amount due to a retiring partner is shown as _________.

A
capital a/c.
B
long term loan.
C
retiring partner loan a/c.
D
term loan a/c.
Answer C
29. A,B and C are sharing profit and loss in the ratio of 4:3:2,B retires and remaining partner agree
to share profit in the ratio of 5:3 and decides not to raise goodwill a/c. Goodwill of the firm is
valued at Rs.72,000. What would be the adjustment entry________.
A
A' A/c Dr Rs.24,000,B's A/c Dr 24,000,C's A/c Credit by Rs.48,000.
B
A's A/c Dr 13,000,C's A/c Dr 11,000,B's A/c credit Rs.24000
C
A's A/c Rs 11,000,C's A/c Dr 13,000, B's A/c Cr. Rs.24,000
D
Goodwill a/c 72,000 Dr, A's Capital, B's capital and C's Capital credit Rs.24,000 each
Answer B
30. A, B and C are three partners. On death of B assets and liabilities are revalued as under,
Provision for doubtful debts reduced by Rs.1050, Stock in trade decreased by Rs.550,
unrecorded liability Rs.1500 taken on record Building increased by Rs.4600. Remaining partners
decides to reinstate the assets and liabilities at old balances. The revaluations would be given
effects by _________.
A
A a/c Dr. 250,C A/c Dr Rs.250,Credit B Rs.500
B
A a/c Dr. 250,C A/c cr Rs.250,Debit B Rs.500
C
A a/c Dr. 500,C A/c Dr Rs.500,Credit B Rs.500
D
A a/c Dr. 250,B A/c Dr Rs.250,Credit C Rs.500
Answer A
31. Consequent upon admission of a new partner in a firm the value of the goodwill is valued at
Rs.60,000. But there exists a goodwill account in the balance sheet which stood at Rs.48,000
what would be treatment of goodwill at the time of admission of a new partner if the firm
follows revaluation method of goodwill?
A
Debit goodwill A/c by Rs.12,000
B
C
D
Credit goodwill A/c by Rs.12,000
Answer A
32. PQR are three partners in a firm, they decided to admit S a fourth partner in the firm with 1/4th
share of profit and loss in the firm. Firm decides to revalue the goodwill of the firm on the basis
of 3 years purchase of past 4 years average profits. What would be the value of the goodwill of
the firm if the firm decides to revalue the goodwill based on 5 years super profit and an average
profit of the industry during the year is 14,000 p.a? Actual past profit of the firm are as follows:
2010 Rs. 22,000
2011 Rs. 17,000
2012 Rs. 22,000
2013 Rs. 19,000
A
Rs, 30,000
B
Rs, 35,000
C
Rs. 25,000
D
Rs. 28,000
Answer A
33. Which of these statements is true?

A
Joint life policy is taken by the partners in order to provide funds at the time of retirement / death of
any partner.
B
Joint life policy reserve account is created to bring down the policy account to surrender value.
C
Indian Partnership Act prohibits payment of any share of profit to a retiring partner if account are
not settled.
D
The retiring partner pays for his share of goodwill to the remaining partner.
Answer A
34. X & Associates is a partnership firm, it intends to revalue its goodwill, average profit for the past
five years is Rs. 11,000 per annum and goodwill is being valued 3 years purchase of average
profit. What would be the value of the goodwill of the firm?
A
Rs.33,000
B
Rs.11,000
C
Rs.35,000
D
Rs.25,000
Answer A
35. A,B and C are three partner sharing profit and loss equally. C dies on 30th June 2010.If the total
profit for the year ending 31st March 2011 amounted to Rs.30,000.What would be the share of
profit to be credited to C's A/c?
A
10,000
B
5,000
C
8,000
D
2,500
Answer D
36. As per provisions of the Partnership Act, executor is entitled to interest at ____% on the final
amount due to the deceased partner.
A
4
B
6
C
8
D
7.5
Answer B
37. ABC Associates has decided to value the goodwill of the firm using capitalisation method. Find
the goodwill of the firm if capital employed of the firm is Rs.24,00,000. Reasonable return on
capital is 12.5% and current years profit is Rs.8,00,000.
A
Rs.64,00,000
B
Rs.40,00,000
C
Rs.24,00,000
D
Rs.56,00,000
Answer B
38. Mr.X is admitted into a partnership firm for 1/4th share of profit. The total capital of the old
partners stood at Rs. 45,000 after carrying adjustment of goodwill, revaluation of assets and
liabilities and transfer of reserves and surplus. If X pays Rs.15,000 as his share of goodwill to the
existing partner privately, what would be accounting treatment?
A
Goodwill A/c to be debited by Rs. 15,000
B
Goodwill A/c to be debited by Rs. 60,000
C
No accounting treatment
D
Credit to goodwill A/c by Rs. 15,000
Answer C
39. ABC are three partners in a firm, they decided to admit D a fourth partner in the firm with 1/4th
share of profit and loss in the firm. Firm decides to revalue the goodwill by capitalizing super
profit @10%. What is the goodwill of the firm average profit and normal profit were Rs. 20,000
and 13,000 respectively?
A
Rs. 70,000
B
Rs, 75,000
C
Rs. 7,000
D
Rs. 13,000
Answer A
40. When the Joint Life Insurance Policy premium is treated as expenses,the amount reserved on
death of the partner is transferred to _________.
A
partners capital A/c.
B
cash A/c.
C
profit and loss appropriation A/c.
D
general reserve A/c.
Answer A
41. Pranav, Karan and Rahim were partners in a firm sharing profits and losses in the ratio
of 2:2:1. On 31st March, 2017 their Balance Sheet was as follows:
Balance Sheet of Pravan, Karan and Rahim as on 31.3.2017
Liabilities Amount Assets Amount

Rs. Rs.
Creditors 30,00,000 Fixed Assets4,50,000
General Reserve 1,50,000 Stock 1,50,000
Debtors 2,00,000
Capitals:
Bank 1,50,000
Pranav 2,00,000
Karan 2,00,000
Rahim 1,00,000_________
5,00,000
9,50,000 9,50,000
Karan died on 12.06.2017. According to the partnership deed, the legal representative of the
deceased partner were entitled to the following:
(i) Balance in his Capital Account
(ii) Interest on Capital @ 12% p.a
(iii) Share of goodwill. Goodwill of the firm on Karan's death was valued at Rs. 60,000
(iv) Share in the profits of the firm till the date of this death, calculated on the basis of last year's
profit. The profit of the firm for the year ended 31.3.2017 was Rs. 5,00,000
Prepare Karan's Capital a/c to be presented to his representatives.
Answer
42. A and B, who are partners, share profits in the ratio of 7:3. C is admitted as a new partner. A
surrenders 1/7 of his share and B surrenders 1/3 of his share in favour of C. The new profit
sharing ratio will be _______.
A
6:2:2
B
4:1:1
C
3:2:2
D
None of these
Answer A
43. Increase in liability at the time of retirement of partner is _______.

A
debited to goodwill account
B
debited to profit & loss account
C
debited to revaluation account
D
credited to revaluation account
Answer C
44. P, Q and R as are in partnership, Q dies on 15th June, which of the following statement is true?
A
Q's estate is not liable at all.
B
Q's estate is not liable for any acts of the firm done after 15th June.
C
Q's estate is liable for all acts up to the end of the financial year when the death occurred.
D
Q's estate is liable only up to the previous financial year.
Answer B
45. A and B are two partners sharing profit and loss equally. Their capital A/c stood at Rs.30,000 and
Rs.25,000 respectively on 31st March, 2013. On 1st April C is admitted for 1/3rd share of profit
for which he brings Rs.12,000 as his share of goodwill. On the date of his admission, stock was
appreciated by Rs.11,000 and provisions for bad debts also increased by Rs.2,000. Old partners
decided that C's capital should be in accordance with his share of profit and capital of old
partners. What amount C should brings as his share of capital in the firm?
A
Rs.40,000
B
Rs.38,000
C
Rs.36,000
D
Rs.41,000
Answer D
46. On the death of a partner, his executor is paid the share of profits of the died partner for the
relevant period. This payment is recorded in Profit & Loss _______ A/c
A
Adjustment
B
Appropriation
C
Suspense
D
Reserve
Answer C
47. Decrease in liability at the time of retirement of partner is ________.

A
debited to Goodwill A/c
B
debited to Profit & Loss A/c
C
debited to Revaluation A/c
D
credited to Revaluation A/c
Answer D
48. In which of the following events public notice is not required?

A
Death of a partner.
B
Insolvency of a partner.
C
Retirement of a sleeping partner.
D
All the the above.
Answer D
49. A and B are two partners sharing profit and loss equally. Their capital A/c stood at Rs.30,000 and
Rs.25,000 respectively on 31st March, 2013. On 1st April C is admitted for 1/3rd share of profit
for which he brings Rs.12,000 as his share of goodwill. On the date of his admission, stock was
appreciated by Rs.11,000 and provisions for bad debts also increased by Rs.2,000. Old partners
decided that C's capital should be in accordance with his share of profit and capital of old
partners. What amount be the total capital of the firm after admission of C?
A
Rs.1,14,000
B
Rs.1,08,00
C
Rs.1,21,000
D
Rs.99,000
Answer B
50. X and Y are two partners in firm having share capital of Rs.10,000 and Rs.15,000 respectively. Z
is admitted for 1/3 share of profit for which he is to bring Rs.15,000 for his share of capital. What
is the goodwill of the firm?
A
Rs.10,000
B
Rs.9,000
C
Rs.5,000
D
Rs.11,000
Answer C
51. A, B & C partners in a firm sharing profits losses in the ratio of 4:3:2. B decided to retire from the
firm. Calculate the new profit sharing ratio of A & C if B gives his share to A & C in the original
ratio of A & C.
A
7:2
B
25:11
C
11:7
D
2:1
Answer D
52. A, B & C are partners sharing profits and losses in the ratio of 3:2:1. B retired from the firm.
What is the gain ratio of the partners A and C?
A
3:2
B
3:1
C
3:7
D
2:1
Answer B
53. P, Q and R share profit and losses in the ratio of 4:3:2 respectively. Q retires and P and R decided
to share future profits and losses in the ratio of 5:3. Then immediately H is admitted of 3/10
shares of profits half of which was gifted by P and remaining shares was taken by H equally form
P and R. Calculate the new profit sharing ratio after H's admission and gain ratio of P and R.
A
New profit sharing ratio = 4:3:3 and Gain Ratio = 13:11
B
C
D
Answer A
54. A, B & C partners sharing profits losses in the ratio of 4:3:2. B decided to retire from the firm.
Calculate the new profit sharing ratio of A & C if B gives his share to A & C in ratio of 3:1.
A
7:2
B
25:11
C
11:7
D
2:1
Answer B
55. X, Y & Z are partners sharing profits and losses in the ratio of 3:2:1. Y retired from the firm. New
profit sharing ratio between X & Z is 5:3. What is the gain ratio of the partners X & Z?
A
3:2
B
3:1
C
3:7
D
3:5
Answer D
56. A, B & C are sharing profits in 4:3:2 ratio. B retires. If A & C shares profits of B in 5:3, then find
the new profit sharing ratio.
A
47:25
B
17:11
C
31:11
D
14:21
Answer A
57. Decrease in assets at the time of retirement of partner is _________.

A
B
C
D
Answer C
58. Increase in assets at the time of retirement of partner is _______.

A
B
C
D
Answer D
59. A, B & C partners in a firm sharing profits, losses in the ratio of 4:3:2. B decided to retire from the
firm. Calculate the new profit sharing ratio of A and C if B gives his share to A only.
A
7:2
B
25:11
C
11:7
D
7:3
Answer A
60. A, B & C are partners sharing profits & losses in the ratio of 3:2:1. B retired from the firm.
Partners A & C decided to take his share in 3:1 ratio. What is the new ratio of the partners A &
C?
A
3:2
B
3:1
C
3:7
D
2:1
Answer B
61. A, B & C partners in a firm sharing profits, losses in the ratio of 4:3:2. B decided to retire from the
firm. B gives his share to A and C in the original ratio of A & C. What is the gain ratio?
A
4:2
B
25:11
C
11:7
D
2:1
Answer D

Capital employed Rs. 8,25,000
Rate of normal return Rs. 10%
Future Maintainable profit Rs. 1,50,000
Annuity factor Rs. 3.17
A
Rs. 4,75,500
B
Rs. 2,61,525
C
Rs. 3,13,975
D
Rs. 2,13,975
Answer D
63. A firm of X,Y & Z has a total capital investment of Rs.3,60,000. The firm earned net profit during
the last four years as Rs.56,000, Rs.64,000, Rs.96,000 and Rs.80,000. The fair return on the net
capital employed is 15%. Value of goodwill if it is based on 3 years purchase of the average super
profits of past 4years.
A
Rs.37,500
B
Rs.50,000
C
Rs.60,000
D
Rs.40,000
Answer C
Total Capital Employed Rs.8,00,000
Reasonable Rate of Return 15%
Profits for the year Rs12,00,000
A
Rs.82,00,000
B
Rs.12,00,000
C
Rs.72,00,000
D
Rs.42,00,000
Answer C
65. The net profits after tax of Z & Co. for the past 5 years are as follows.
Year Profit
2007−2008 2,56,000
2008−2009 2,64,000
2009−2010 3,76,000
2010−2011 4,86,000
2011−2012 5,30,500
The capital employed is Rs. 16,00,000. Rate if normal return is 15%. Calculate the value of the
goodwill on the basis of annuity method on super-profits basis, taking the present value of an
annuity of Rs. 1 for the 4 years at 15% as 2.855.
A
Rs. 7,65,000
B
Rs. 8,67,800
C
Rs. 5,70,000
D
Rs. 4,06,838
Answer D
66. Which of the following formula is/are used for valuation goodwill under super profit basis?
A
Goodwill = Super profit * No. of years purchases.
B
Goodwill = Super profit * annuity factor.
C
Goodwill = Superprofit/Capitalisation rate X100.
D
All of the above.
Answer D
67. The profits and losses for the last years are:
2011−2012 Losses Rs. 10,000
2012−2013 Losses Rs. 2,500
2013−2014 Profits Rs. 98,000
2014−2015 Profits Rs. 76,000
The average capital employed in the business is Rs. 2,00,000. The rate of return expected from
capital invested is 12%. The remuneration of partners is estimated to be Rs. 1,000 per month not
charged in the above losses/profits. Calculate the value of goodwill on the basis of two years
purchase of super profits based on the average profit of 4 years.
A
Rs. 9,000
B
Rs. 8,750
C
Rs. 8,500
D
Rs. 8,250
Answer B
68. A & B are partners for 5:3.They take C and new profit sharing ratio was 4:3:1. Memorandum
revaluation A/c is opened to show assets and liabilities at original values. How profits will be
shared?
A
In the first part of the Memorandum Revaluation A/c profit will be sharred in the ratio of 4:3:1 by
A,B & C respectively and in the second part profit will be written back in the ratio of 5:3 by A and B
respectively.
B
In the first part of the Memorandum Revaluation A/c profit will be shared in the ratio of 4:3:1 by A,B
&C respectively and in second part profit will written back in the sacrifying ratio
C
In first part of Memorandum Revaluation A/c profit will be shared in the ratio of 5:3 by A & B
respectively and in second part profit will written back in the ratio of 4:3:1 by A,B &C respectively
D
None of the above
Answer C
69. A, B & C partners in a firm sharing profits losses in the ratio of 4:3:2. B decided to retire from the
firm. B gives his share to A & C in ratio of 3:1. What is the gain ratio?
A
7:2
B
3:1
C
11:7
D
2:1
Answer B
70. A,B, & C are equal partners. D is admitted to the firm for 1/4th share. D brings Rs.20,000 capital
and Rs.5,000 being half of the premium for goodwill.
The value of goodwill of the firm is
A
Rs.10,000
B
Rs.40,000
C
Rs.20,000
D
None of the above
Answer B
Year Profit/(loss)
2001−2002 (20,000)
2002−2003 (5,000)
2003−2004 1,96,000
2004−2005 1,52,000
The average capital employed in the business is Rs. 4,00,000. The rate of interest expected from
capital invested is 12%. The remuneration of partners is estimated to be Rs. 2,000p.m. not charged
in the above losses/profits. Calculate the value of goodwill on the basis of 2 years purchase of super
profits based on the average of four years.
A
Rs. 18,000
B
Rs. 17,500
C
Rs. 17,000
D
Rs. 16,500
Answer B
72. Profits & losses for the last years are:
2011−2012 Losses Rs. 10,000
2012−2013 Losses Rs. 2,500
2013−2014 Profits Rs. 98,000
2014−2015 Profits Rs. 76,000
The average capital employed in the business is Rs. 2,00,000. The rate of interest expected from
capital invested is 12%. The remuneration of partners is estimated to be Rs. 1,000 per month.
Calculate the value of goodwill on the basis of four years purchase of super profits based on the
annuity of the four years. Take discounting rate as 10%.
A
Rs. 13,500
B
Rs. 13,568
C
Rs. 13,668
D
Rs. 13,868
Answer D
73. A & B shares profit & losses equally. They admit C as an equal partner and goodwill was valued
at Rs.30,000 (book value NIL). C is to bring in Rs.20,000 as his capital and the necessary cash
towards his share of goodwill. Goodwill Account will not remain in the books. What will be the
final effect of goodwill in the partners' capital account?
A
A & B's account credited with Rs.5,000 each.
B
All partner's account credited with Rs.10,000 each
C
Only C's account credited with Rs.10,000 as cash bought in for goodwill
D
Final effect will be nil in each partner
Answer A
74. H & M are partners in a firm sharing profits and losses in the ration of 2:5. They admit K as a new
partner who will get 1/6th share in the profits of the firm. Calculate new profit sharing ration
among H, M & K.
A
10:25:7
B
7:25:10
C
25:10:7
D
10:7:25
Answer A
75. A & B shares profit & losses equally. They admit C as an equal partner and assets were revalued
as follow: Goodwill at Rs. 30,000(book value NIL). Stock at Rs. 20,000(book value Rs. 12,000);
Machinery at Rs. 60,000(book value Rs. 55,000). C is to bring in Rs. 20,000 as his capital and the
necessary cash towards his share of Goodwill. Goodwill Account will not be shown in the books.
Find the profit/loss on revaluation to be shared among A, B & C.
A
21,500:21,500:0
B
6,500:6,500:0
C
14,333:14,333:14,333
D
4,333:4,333:4,333
Answer B
76. A & B are partners sharing profits in the ratio 5:3, they admitted C giving him 3/10th share of
profit. If C acquires 1/5 from A and 1/10th from B, new profit sharing ratio will be _________.
A
5:6:3
B
2:4:6
C
18:24:38
D
17:11:12
Answer D
77. X & Y share profits & losses as 1:2. They agree to admit Z (who is also in business on his own) as
a third partner.
At the time of admission of Z goodwill was appearing in balance sheet at Rs.14,000 which was
revalued at Rs.18,000. Z brings the following assets into the partnership:
Goodwill- Rs.6,000 Furniture-Rs.2,800, Stock-Rs.13,600
After admission of Z, goodwill will appear at _______ in the balance sheet.
A
Rs.14,000
B
Rs.18,000
C
Rs.24,000
D
Rs.26,000
Answer C
78. A,B & C were equal partners with goodwill Rs.1,20,000 in the balance sheet and they agreed to
take D as an equal partner on the term that he should bring Rs.1,60,000 as his capital and
goodwill, his share of goodwill was evaluated at Rs.60,000 and the goodwill account is to be
written off before admission. What will be the treatment for goodwill?
A
Write off the goodwill of Rs.1,20,000 in old ratio.
B
Cash brought in by D for goodwill will be distributed among old partners in sacrificing ratio.
C
Both (A) & (B).
D
None of the above.
Answer C
79. A & B are sharing profits in the ratio of 5:3. C was admitted on the following terms:
New profit sharing ratio wiill be 7:5:3
Machinery would be appreciated by 10% (book value Rs.1,80,000)
Building would be depreciated by 6% (book value Rs.1,50,000)
To create provision for bad debts 5% on Debtors of Rs.40,000
Find the distribution of profit/loss on revaluation between A & B
A
Profit 4,083 & 2,917
B
Profit 2,625 & 4,375
C
Profit 2,917 & 4,083
D
Profit 4,375 & 2,625
Answer D
80. R & S are in partnership sharing profit and losses at the ratio 3:2. They take T as a new partner.
Calculate the new profit sharing ratio, if R & S agree to sacrifice 1/10th share to T in the ratio of
2:3.
A
27:18:5
B
28:17:5
C
5:4:1
D
19:19:12
Answer B
81. A,B & C are equal partners. They decided to take D who brought in Rs.36,000 as goodwill. The
new profit sharing ratio is 3:3:2:2. The journal entry for goodwill will be-
A Capital A/c
6,000
Dr.
6,000
B Capital A/c Dr.
24,000
C Capital A/c Dr.
36,000
To D Capital A/c
Cash A/c Dr. 36,000
To A Capital A/c 6,000
To B Capital A/c 6,000
To C Capital A/c 24,000
Cash A/c Dr. 36,000
Goodwill A/c Dr. 36,000
A
A
B
B
C
C
D
D
Answer A
82. N & Z are partners in a firm sharing profits and losss in the ratio of 3:2. S joins the firm
for 1/3rd share. and is to pay Rs.5,000 as premium for goodwill but cannot pay anything. As
between N and Z, they decided to share profits and losses equally. It was agreed that goodwill
has to be adjusted through partner's capital account.
Required journal entry-
N Capital A/c Dr. 4,000
Z Capital A/c Dr. 1,000
To S A/c 5,000
S Capital A/c Dr. 5,000
To N Capital A/c 4,000
To Z Capital A/c 1,000
S Capital A/c Dr. 5,000
To N Capital A/c 1,000
To Z Capital A/c 4,000
Premium for Goodwill A/c
20,000
Dr.
8,000
To N Capital A/c
12,000
To Z Capital A/c
A
A
B
B
C
C
D
D
Answer B
83. If one of the partner of a partnership firm comprising 2 partners dies, then _________.
A
firm will dissolve
B
partnership profits will change, no effect on firm
C
both (A) & (B)
D
none of these
Answer A
84. Ashish, Satish and Manish were partners in a business sharing profits and losses in the ratio
of 3:1:1 respectively.
Their Balance Sheet as on 31st March, 2016 was as follows":
Balance Sheet as on 31st March, 2016
Liabilities Amount (Rs.)Assets Amount(Rs.)
Capital
Plant and machinery70,000
accounts
Ashish 80,000 Stock 50,000
Satish 60,000 Debtors 40,000
Manish 50,000 Cash 60,000
Creditors 10,000
Reserve fund 20,000
2,20,000 2,20,000
Manish dies on 1st October, 2016 and the partnership deed provided that:
(1) The deceased partner to be given his share of profit upto the date of death on the basis of the
profit of the previous year.
(2) His share of goodwill will be calculated on the basis of two years purchase of average profit to
the last four years.
The net profits for the last four years were:
First year: Rs. 1,40,000, Second year: Rs. 1,10,000.
Third year: Rs. 90,000, Fourth year: Rs. 60,000.
(3) Plant and machinery to be valued at Rs. 80,000. Reserve for doubtful debts of Rs. 4,000 to be
created.
(4) The drawings of Manish upto the date of death amounted to Rs. 40,000
(5) Interest on capital is to be allowed at 10% p.a. and interest on drawings is charged at 6% p.a.
Prepare:
(1) Profit and Loss Adjustment Account.
(2) Manish's Capital Account.
(3) Working of Manish's share in profit and goodwill.
Answer R.E.F image
Working Note
Manish Profit =60000∗1/5∗6/12=6000
Interest on Capital =50000∗10/100∗6/12=2500
Int on Drawing =40000∗6/100∗6/12=1200
Calculation of Goodwill of Manish
Avg Profit =140000+110000+90000+60000/4
40000/4=100000
goodwill =100000∗2
Mansih share =200000∗1/5=40000
Ashish 3/4=30000
Satish 1/4=10000

Unless otherwise agreed, a retiring partner can _______.
A
carry on competing business
B
use the firms name
C
represent himself as carrying on firms business
D
solicit the old customers
Answer A
86. A & B are sharing profits and losses in the ratio of 3:2. C joins the firm for 1/3rd share and is to
pay Rs.20,000 as permium for goodwill but cannot pay anything. As between A & B, they
decided to share profits and losses equally. Required journal entry
A Capital A/c Dr. 36,000
B Capital A/c Dr. 24,000
To Coodwill A/c 60,000

To A Capitla A/c 36,000
Goodwill A/c Dr, 60,000

To A Capital A/c
30,000
To B Capital A/c
30,000
60,000
Dr.
24,000
To A Capital A/c
36,000
To B Capital A/c
A
A
B
B
C
C
D
D
Answer B
87. A & B are partners sharing profits and losses in the ratio of 3:2. C joins the firm for 1/3rd share,
and is to pay Rs.40,000 as premium for goodwill but cannot pay anything. As netween A and B,
they decided to share profits and losses equally. Goodwill already appearing in balance sheet
is 1,00,000 Required journal entry
To Goodwill A/c 1,20,000
Goodwill A/c Dr. 1,20,000
20,000
Dr.
8,000
To A Capital A/c
12,000
To B Capital A/c
A
A
B
B
C
C
D
D
Answer C
88. A & B are sharing profits & losses in the ratio of 3:2. C is coming as a new partner who pays
Rs.25,000 as premium fro goodwill. The profit sharing ration among A,B & C is equal. If
premium money is retained in business which of the following journal entry is correct for
sharing permium for goodwill?
To Premium for Goodwill A/c 25,000
25,000
Dr.
5,000
To A Capital A/c
20,000
To B Capital A/c
Premium for Goodwill A/c Dr. 25,000
Premium for Goodwill A/c Dr. 25,000
A
A
B
B
C
C
D
D
Answer C
89. A & B were partners sharing profits & losses in the ratio of 3:1. C was admitted to the firm on
the following terms:
C would provide Rs.1,00,000 as a capital and pay Rs.20,000 as goodwill for his 1/3rd share in
future profits. Goodwill account would not appear in the books. A,B & C would share profits
equally. Which of the following journal is correct in relation to premium for goodwill
Rs.20,000 brought in by new partner?
20,000
Dr.
5,000
B Capital A/c Dr.
25,000
To A Capital A/c
20,000
Dr.
15,000
To A Capital A/c
5,000
To B Capital A/c
20,000
Dr.
10,000
To A Capital A/c
10,000
To B Capital A/c
20,000
Dr.
5,000
A Capital A/c Dr.
25,000
To B Capital A/c
A
A
B
B
C
C
D
D
Answer A
90. A & B are partners with capitals of Rs.10,000 and Rs.20,000 respectively and sharing profits
equally. They admitted C as their third partner with 1/4th profits on the payment of Rs.12,000.
The amount of hidden goodwill is ___________.
A
Rs.6,000
B
Rs.10,000
C
Rs.8,000
D
None of the above
Answer A
91. The net profits of a business, after providing for income tax for the last 5 years were: Rs 80,000,
Rs 1,00,000, Rs 1,20,000, Rs 1,25,000 and Rs 2,00,000 respectively. The capital employed in the
business is Rs 10,00,000 and the normal rate of return is 10%. Calculate the value of the goodwill
on the basis of the annuity method taking the present value of annuity of Rs 1 for 5 years at 10%
is 3.7907.
A
Rs 84,768
B
Rs 95,768
C
Rs 94,768
D
Rs 60,000
Answer C
Calculate the new profit sharing ratio. If T simply gets 1/10th share of profit.
A
27:18:5
B
28:17:5
C
5:4:1
D
19:19:12
Answer A
93. Capital employed by a partnership firm is Rs.1,00,000. Its average profit is Rs.20,000. Normal
rate of return is 15%. Value of goodwill is _________.
A
Rs.33,333
B
Rs.30,000
C
Rs.23,333
D
Rs.43,667
Answer A

Capital employed - Rs 8,25,000
Rate of normal return - Rs. 10%
Future Maintainable profit - Rs 1,50,000
Annuity factor - Rs. 3.17
A
Rs 4,75,500
B
Rs 2,61,525
C
Rs 3,13,975
D
Rs 2,13,975
Answer D
95. A,B & Care partners sharing profits losses in the ration of 4:3:2. B decided to retire form the firm.
Calculate the new profit sharing ratio of A & C if B gives his share to A only.
A
7:2
B
25:11
C
11:7
D
7:3
Answer A
Year Profit/(loss)
2001-2002 (20,000)
2002-2003 (5000)
2003-2004 1,96,000
2004-2005 1,52,000
The average capital employed in the business is Rs 4,00,000. The rate of interest expected from
capital invested is 12%. The remuneration of partners is estimated to be Rs 2,000 p.m. not charged
in the above losses/profits. Calculate the value of goodwill on the basis of 2 years purchase of super
profits based on the average of four years.
A
Rs 18,000
B
Rs 17,500
C
Rs 17,000
D
Rs 16,500
Answer B
97. A & B are partners sharing profits & losses in the ratio of 7:3. They admit C as a new partner. A
sacrified 1/7th share of his profit and B sacrified 1/3rd of his share in favour of C. The new profit
sharing ratio will be -
A
3:1:1
B
2:1:1
C
2:2:1
D
None of the above
Answer A
98. The net profits after tax of Z & Co. for the past 5 years are as follows:
Year Profit
2007-2008 2,56,000
2008-2009 2,64,000
2009-2010 3,76,000
2010-2011 4,86,000
2011-2012 5,30,500
The capital employed is Rs. 16,00,000. Rate of normal return is 15%. Calculate the value of the
goodwill on the basis of annuity method on super-profits basis, taking the present value of an
annuity of Rs 1 for the 4 years at 15% as 2.855
A
Rs. 7,65,000
B
Rs 8,67,800
C
Rs 5,70,000
D
Rs 4,06,838
Answer D
Calculate the new profit sharing ratio. If T purchases 1/10th share to T in the ratio of 2:3.
A
27:18:5
B
28:17:5
C
5:4:1
D
19:19:12
Answer A
100. A,B & Care partners sharing profits losses in the ration of 4:3:2. B decided to retire form the
firm. Calculate the new profit sharing ratio of A & C if gives his share to A & C in ratio of 3:1.
A
7:2
B
25:11
C
11:7
D
2:1
Answer B
101. Balance of R,H & M sharing profits & losses in the ratio 2:3:2 stood as R - 10,000; H -
15,00,000; M - 10,00,000; Joint Life Policy 3,50,000 H desired to retire from the firm and the
remaining partners decided to carry on with the future profit sharing ratio of 3:2 Joint policy of
the partners surrendered and cash obtained 3,50,000 What would be the treatment for JLP A/c?
A
3,50,000 credited to partner's capital account in new ratio.
B
3,50,000 credited to partner's capital account in old ratio.
C
3,50,000 credited to partner's capital account in capital ratio.
D
3,50,000 credited to JLP account
Answer D
102. Answer briefly the following question:

Give the formula for valuation of goodwill by the Capitalisation of Average Profit Method.
Answer Formula for calculating goodwill by the Capitalisation of Average Profit Method is :
Goodwill = Capitalised value - Net assets of business where,
Capitalised Value = (Average Future maintainable profits/ Normal Rate of Return) * 100
Net assets = All Assets - Outsider's Liability
103. A, B & C Care the partners sharing profits and losses in the ratio 2:1:1. Firm has a joint life
policy of Rs.1,20,000 and in the balance sheet it is appearing at the surrender value i. e.
Rs.20,000. On the the death of A, how this JLP will be shared among the partners?
A
50,000:25,000:25,000
B
60,000:30,000:30,000
C
40,000:35,000:25,000
D
Whole of Rs.1,20,000 will be paid to A
Answer A
104. A and B are sharing profits in the ratio of 3: 1. According to their partnership deed, on
reconstitution of a firm, "goodwill is to be valued at two and a half years purchase of the average
profits of the last three completed years." The profits were: Year I Rs. 20,000, Year II. Rs. 30,000,
Year III Rs. 40,000, Year IV Rs. 50,000, Year V Rs. 60,000. C is admitted for 1/5th share in profits
at end of Year VI. The amount which 'C' will be required to bring by way of his share of goodwill
will be ________.
A
Rs. 20,000
B
Rs. 25,000
C
Rs. 30,000
D
None of these
Answer A
105. Ashish, Aakash and Amit are partners, sharing profits and losses equally. The Balance
Sheet as at 31st March, 2018 was as follows :
Sundry Creditors 75,000 Cash in Hand 24,000
General Reserve 90,000 Cash at Bank 1,40,000
Capital A/c's: Sundry Debtors 80,000
Ashish
Stock 1,40,000
3,00,000
Land and
Aakash 3,00,000 4,00,000
Building
Amit
8,75,000 Machinery 2,50,000
2,75,000
Advertisement 6,000
10,40,000 10,40,000
The partners decided to share profits in the ratio of 2:2:1 w.e.f. 1st April, 2018 . They also decided
that :
(i) Value of stock to be reduced to Rs. 1,25,000 .
(ii) Value of machinery to be decreased by 10% .
(iii) Land and Building to be appreciated by Rs. 62,000 .
(iv) Provision for Doubtful Debts to be made @5%
(v) Aakash was to carry out reconstruction of the firm at a remuneration of Rs. 10,000.
Pass necessary Journal entries to give effect to the above.
Answer
106. If a partner dies, then JLP will be reckoned at ________.

A
surrender value
B
maturity value
C
policy value
D
none of these
Answer B
107. P,Q and R share profit and losses in the ration of 4:3:2 respectively. Q retires and P and R
decided to share future profits and losses in the ratio of 5:3. Then immediately H is admitted of
3/10 shares of profits half of which was gifted by P an remaining shares was taken by H equally
form P and R. Calculate the new profit sharing ratio after H' admission and gain ratio of P and R.
A
B
C
D
Answer A
108. A, B, C & D are partners sharing profits & losses in the ratio of 3:3:2:2. D retires, and A, B & C
decide to share the future profits in the ratio of 3:2:1. The gaining ratio will be _________.
A
1:6
B
6:1
C
1:1
D
none of these
Answer B
109. A and B are partners sharing profits in the ratio of 2:12:1. C is admitted for 1/5th share. The
new profit sharing ratio will be _________.
A
3:1:1
B
1:3:1
C
2:2:1
D
None of these
Answer A
110. X and Y are partners, sharing profits and losses in the ratio of 3 : 2. They employed Z as their
Manager, to whom they paid a salary of Rs. 7,500 per month. Z had deposited Rs. 2,00,000 on
which interest was payable @ 9% pa. At the end of the accounting year (i.e., 31st March 2018)
2017-18 (after division of the year's profits), it was decided that Z should be treated as a partner
with effect from 1st April 2014 with 1/6th share of profits, his deposits being considered as
capital carrying interest @ 6% p.a. like capitals of other partners. The firm's profits and losses
after allowing interest on capitals were-2014-15: Profit 5,90,000; 2015-16: Profit 6,26,000; 2016-
17: Loss 40,000 and 2017-18: Profit 7,80,000. Record necessary Journal entries to give effect to
the above. Note: Interest on capital Is to be allowed as a charge.
Answer Calculation of profit before Z's salary and Interest on loan
Year 2014-15 2015-16 2016-17 2017-18
profit/loss 590000 626000 (40000) 780000
Add:-Salary 90000 90000 90000 90000
Add:-Interest on Z's loan 18000 18000 18000 18000
Profit before Z's salary
and Interest on loan 698000 734000 68000 888000
Total profit for 4 years = 2388000

Calculation of interest on capital = 200000*6% = 12000
Interest on capital for 4 years= 12000*4=48000
Profit after Z's interest on capital = 2388000-48000
= 2340000
Z's share of profit= 2340000/6=390000
Z's share as partner= 390000+48000=438000

Less Z's share as manager= salary+interest on loan=360000+72000
= (432000)
Z to get from X and Y = 6000
The following journal entries need to be passed:-

X's capital A/c Dr.(6000*3/5) 3600
Y's capital A/c Dr.(6000*2/5) 2400
To Z 's capital A/c 6000
(Being Z paid by X and Y in 3:2 ratio)
Z's loan A/c Dr. 200000

To Z's capital A/c 200000
(Being Z's loan transferred to Z' capital A/c)
111. A and B are partners in a firm with capital of Rs.1,20,000 respectively. They decide to admit
C into the partnership for 1/4th share in the future profits. C is to bring in a sum of Rs.70,000 as
his capital. Calculate amount of goodwill.
Answer Goodwill is the reputation of a business earned over some years represented in monetary
terms. Whenever there is a change in the constitution of a partnership by way of
admission,retirement or death, a valuation of goodwill is necessary.
In the given question we have to calculate hidden goodwill. Hidden goodwill is the goodwill which is
not given in the question and we have to calculate it on the basis of total capital of the firm and
other given information.
C's share is 1/4th and he brings 70,000 as his capital.
Total capital = 70,000 * 4 = 2,80,000
3/4th capital = 2,80,000-70,000 = 2,10,000
Total capital of A and B = 1,20,000+1,20,000 = 2,40,000
Value of goodwill = Difference between old and new capital
= 2,40,000 - 2,10,000 = 30,000
For 1/4th share, C is bringing 70,000 as capital. So,the new capital of the firm on the basis of C's
capital is 2,80,000. A and B capital according to their ratio i.e 1:1 should be 2,10,000/2 = 1,05,000
each. So,the excess is goodwill.
112. J,H and K were partners in a firm sharing profits in the ratio of 5:3:2. On 31.3.2015 their
Balance Sheet was as follows.
Refer image,
On the above date H retired and J and K agreed to continue the business on the following terms :
(i) Goodwill of the firm was valued at Rs.1,02,000.
(ii) There was a claim of Rs.8,000 for workmen's compensation.
(iii) Provision for bad debts was to be reduced by Rs.2,000.
(iv) H will be paid Rs.14,000 in cash and the balance will be transferred in his loan account which will
be paid in four equal yearly instalments together with interest @10% p.a.
(v) The new profit sharing ratio between J and K will be 3:2 and their capitals will be in their new
profit sharing ratio. The capital adjustments will be done by opening current accounts.
Prepare Revaluation Account, Partner's Capital Accounts and Balance Sheet of the new firm.
Answer
113. Following is the Balance Sheet of A and B , who shared Profits and Losses in the ratio 2:1 as
at 1st April, 2018 :
Capital A/cs
A
3,00,000 Land and
5,00,000 2,90,000
B 2,00,000 Buildings
Reserve 1,50,000 Furniture 80,000
Creditors 2,00,000 Stock 2,40,000
Debtors 1,50,000
Bank 60,000
Cash 30,000
8,50,000 8,50,000
On the above date, the partners changed their profit-sharing ratio to 3:2 . For this purpose, the
goodwill of the firm was valued at Rs. 3,00,000 . The partners also agreed for the following :
(a) The value of Land and Building will be Rs. 5,00,000 ;
(b) Reserve is to be maintained at Rs. 3,00,000
(c) The total capital of the partners in the new firm will be Rs. 6,00,000 , which will be shared by
the partners in their new profit sharing ratio.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the
reconstituted firm.
Answer
114. Arun, Varun and Karan were partners in a firm sharing profits in the ratio of 4:3:3.
On 31.3.2014, their Balance Sheet was as follows :
Amount Amount
Liabilities Assets
Rs. Rs.
Creditors 17,000 Cash 8,000
Bills Payable 12,000 Debtors 13,000
Karan's Loan
28,000 Bills Receivables9,000
Capitals :
Furniture 27,000
Arun 70,000
Machinery 1,25,000
Varun 68,00
1,38,000Koran's Capital 13,000
0
1,95,000 1,95,000
On 30.9.2014, Karan died. The Partnership Deed provided for the following to the executors of the
deceased partner :
(a) His share in the goodwill of the firm calculated on the basic of three years' purchase of the
average profits of the last four years. The profits of the last four years
were Rs.1,90,000; Rs.1,70,000; Rs.1,80,000 and Rs.1,60,000 respectively.
(b) His share in the profits of the firm till the date of his death calculated on the basis of the
average profits of the last four years.
(c) Interest @ 8% p.a. on the credit balance, if any, in his Capital Account.
(d) Interest on his loan @12% p.a.
Prepare Karan's Capital Account to be presented to his executors, assuming that his loan and
interest on loan were transferred to his Capital Account.
Answer

Reconstitution of A Partnership Firm Retirement Death of A Partner

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Reconstitution Of A Partnership Firm Retirement

12. What is meant by Purchased Goodwill?

Step 2: Calculation of Average Profit:

Step 3: Calculation of Super Profit:

Step 4: Calculation of Goodwill:

Step 3: Calculation of Goodwill:

15. What is meant by Self-generated Goodwill?

19. How does location affect the Goodwill of a business?

The accounting entry is:

27. Why should a new partner contribute for goodwill on admission?

28. State the need for treatment of goodwill on admission of a partner.

(a) Goodwill appears in the books at 202500

(b) Goodwill appears in the books at 205500

(Being adjustment of accumulated reserves through the partner's current accounts)

X's sacrifice= 3/5 * 1/3

X's new share= 3/5- 3/15

Sacrificing ratio= 2:1

44. How to calculate goodwill by average profit method?

46. What do you mean by joint life policy?

47. How is the value of goodwill affected by the nature of business?

2. The formula of average profit method is __________.

3. 'Dogs' is applicable in case of professional services like ______________.

4. _________ is calculated when a partner retires from the firm.

6. The formula of super profit is ____________.

8. Goodwill means ___________.

9. Liquidation expenses paid by the transferee company is debited to _________.

12. During the reconstitution of partnership firm, _________ is valued.

13. _______ is an intangible asset which arises on acquisition or is internally generated.

18. Goodwill is a _______ asset but not fictitious asset.

19. Dog - Goodwill 1. Fugitive good will

30. Average profit method is based on the assumption that _____________.

32. Goodwill is regarded as an___________ asset.

34. Following are the factors affecting goodwill except:

35. A partner may retire with the consent of:

Y's capital a/c Dr. 7,600

Z's capital a/c Dr. 6,000

To Goodwill a/c 24,000

To X's capital a/c 10,400

To Y's capital a/c 7,600

To Z's capital a/c 6,000

Y's capital a/c Dr. 7,600

To Z's capital a/c 18,000

42. Accumulated profits are transferred to capital account in ______ratio.

44. Who is entitled to have share in accumulated profits?

46. Accumulated Profits are transferred to ________________.

49. Normal Profit = ________________

50. what are accumulated profits ?

51. Money value of the reputation of business is known as ______.

52. Interest on capital of partner is a _________.

53. Give journal entry of:

To General Reserve a/c

To partner's capital a/c

To General Reserve A/c

54. A partner may retire from the firm ________.

56. At time of admission overstated asset is transferred to _______account.

57. General reserve, transferred to partners capital accounts in ___ ratio.

64. Interest allowed on the capital of partner is charged to ________.

65. To ascertain profit or loss on retirement / death of a partner _____________ is prepared.

68. When a partner retires, his share of profit is __________.

72. Profit or loss on revaluation of assets and liabilities is transferred to __________.

75. Decreased in liability at the time of retirement of a partner is _________.

76. Decrease in assets at the time if retirement of a partner is ________.

77. Gain Ratio is _______.

188. Gaining Ratio = _ Minus _ .