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Accountancy · Class 12 Commerce

Ch 4Goodwill in Partnership Accounts — Class 12 Accountancy, concept-first.

Every business that has been running successfully for some years usually earns more than what a similar new business could earn with the same amount of capital and effort.

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Key concepts

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Chapter contents

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1

Meaning and Nature of Goodwill

Every business that has been running successfully for some years usually earns more than what a similar new business could earn with the same amount of capital and effort.

2

Factors Affecting the Value of Goodwill

Because goodwill is essentially a firm's capacity to earn super profits, anything that strengthens or weakens that capacity changes the value of its goodwill.

3

Need for Valuation of Goodwill in a Partnership Firm

As long as the partnership continues exactly as it is, with no change in who the partners are or in how they share profits and losses, goodwill does not have to be measured or recorded — every partner…

4

Valuing Goodwill — Average Profit and Weighted Average Profit Methods

The simplest and most widely used method values goodwill as a multiple of the firm's average profit over a chosen number of past years:

5

Valuing Goodwill — Super Profit and Capitalization Methods, and Treatment in the Books

The Average Profit and Weighted Average Profit methods value goodwill on the whole of the firm's average earnings.

Exercises

Sample & Board Papers

Sample papers and previous-year board questions for this subject.

+Show 31 questions31 questions
  1. Q1Select the odd one out : (a) Fixed capital method (b) Average profit method (c) Super profit method (d) Capitalisation methodPreview
  2. Q2Identify the incorrect pair : (a) Goodwill under annuity method = Average profit × Present value annuity factor (b) Goodwill under average p…Preview
  3. Q3What is self-generated Goodwill ?Preview
  4. Q4Compute average profit from the following information. 2016 : ₹ 8,000 2017 : ₹ 10,000 2018 : ₹ 9,000Preview
  5. Q5From the following information, calculate the value of goodwill under annuity method : (i) Average profit ₹ 14,000 (ii) Normal profit ₹ 4,00…Preview
  6. Q6A partnership firm earned net profits during the last three years as follows : 2016 : ₹ 20,000, 2017 : ₹ 17,000 and 2018 : ₹ 23,000. The cap…Preview
  7. Q7The following are the profits of a firm in the last five years : 2014 : ₹ 4,000 ; 2015 : ₹ 3,000 ; 2016 : ₹ 5,000 ; 2017 : ₹ 4,500 and 2018…Preview
  8. Q8Which of the following is true ? (a) Super profit = Average profit − Normal profit (b) Super profit = Total profit/number of years (c) Super…Preview
  9. Q9What is super profit ?Preview
  10. Q10The profits and losses of a firm for the last four years were as follows : 2015 : ₹ 15,000 ; 2016 : ₹ 17,000 ; 2017 : ₹ 6,000 (Loss) ; 2018…Preview
  11. Q11(a) From the following information, calculate the value of goodwill based on 3 years purchase of super profit. (i) Capital employed : ₹ 2,00…Preview
  12. Q12Which of the following statement is true ? (a) Goodwill is a fictitious asset (b) Goodwill is an intangible asset (c) Goodwill cannot be acq…Preview
  13. Q13When the average profit is ₹ 50,000 and the normal profit is ₹ 40,000, Super Profit is : (a) ₹ 10,000 (b) ₹ 25,000 (c) ₹ 15,000 (d) ₹ 5,000Preview
  14. Q14State any two circumstances under which goodwill of a partnership firm is valued.Preview
  15. Q15Value of the goodwill of Arul Enterprises is ₹ 1,20,000, Average profit is ₹ 40,000. Calculate the number of years of purchase.Preview
  16. Q16State any six factors determining Goodwill.Preview
  17. Q17Goodwill which cannot be recorded in the books of accounts : (a) Self generated goodwill (b) Acquired goodwill (c) Purchased goodwill (d) No…Preview
  18. Q18Identify the incorrect pair. (a) Goodwill under Annuity method = Average profit × Present value annuity factor (b) Goodwill under Average pr…Preview
  19. Q19What is Goodwill ?Preview
  20. Q20From the following information, find out the value of Goodwill by Capitalisation method. (a) Average profit ₹ 20,000 (b) Normal rate of retu…Preview
  21. Q21(a) From the following information, calculate the value of Goodwill based on 3 years purchase of Super Profit. (i) Capital employed : ₹ 2,00…Preview
  22. Q22The average Rate of Return of similar concern is considered as : (a) Normal Rate of Return (b) Expected Rate of Return (c) Average Profit (d…Preview
  23. Q23Which of the following is true ? (a) Super Profit = Average Profit − Normal Profit. (b) Super Profit = Total Profit/Number of years. (c) Sup…Preview
  24. Q24What is acquired Goodwill ?Preview
  25. Q25From the following information, calculate the value of Goodwill on the basis of 3 years purchase of average profits of last four years. | Ye…Preview
  26. Q26(a) Find out the value of Goodwill by capitalising Super profits. (i) Normal Rate of Return 10%. (ii) Profits for the last four years are ₹…Preview
  27. Q27The total capitalised value of a business is ₹ 1,00,000; Assets are ₹ 1,50,000 and Liabilities are ₹ 80,000. The value of Goodwill as per th…Preview
  28. Q28When the average profit is ₹ 45,000 and the normal profit is ₹ 35,000 super profit is : (a) ₹ 10,000 (b) ₹ 25,000 (c) ₹ 15,000 (d) ₹ 5,000Preview
  29. Q29What is Super profit ?Preview
  30. Q30From the following information, calculate the value of Goodwill under Annuity method. (i) Average profit ₹ 24,000 (ii) Normal profit ₹ 14,00…Preview
  31. Q31(a) From the following information relating to Priya Enterprises, calculate the value of Goodwill on the basis of 4 years purchase of the av…Preview

More questions

+Show 10 questions10 questions
  1. Q4The profits of a firm for the last five years were: 2019 – ₹40,000; 2020 – ₹50,000; 2021 – ₹45,000; 2022 – ₹60,000; 2023 – ₹55,000. Calculat…Free
  2. Q5A firm's reported profits for three years were: 2021 – ₹1,00,000 (this includes an abnormal loss of ₹20,000 due to theft); 2022 – ₹1,20,000…Free
  3. Q6A firm's profits for four years were: 2020 – ₹80,000; 2021 – ₹88,000; 2022 – ₹1,00,000 (closing stock for this year was overvalued by ₹12,00…Free
  4. Q7A firm's profits for four years, showing a rising trend, were: 2020 – ₹1,00,000; 2021 – ₹1,20,000; 2022 – ₹1,30,000; 2023 – ₹1,50,000. The f…Preview
  5. Q8A firm's reported profits for three years were: 2021 – ₹90,000 (includes an abnormal gain of ₹6,000 on the sale of a fixed asset); 2022 – ₹1…Preview
  6. Q9A firm has a capital employed of ₹10,00,000 and the normal rate of return in this line of business is 10%. The firm's average profit is ₹1,3…Preview
  7. Q10From the following Balance Sheet figures, total assets of a firm (excluding goodwill) are ₹15,00,000 and outside liabilities are ₹5,00,000.…Preview
  8. Q11A firm's average profit, as per its books, is ₹2,00,000. This figure does not include any remuneration for the partner who manages the busin…Preview
  9. Q12A firm's average profit is ₹1,50,000 and its net capital employed is ₹12,00,000. The normal rate of return in similar businesses is 10%. Fin…Preview
  10. Q13A firm's average profit is ₹2,00,000, its net capital employed is ₹15,00,000, and the normal rate of return is 10%. Find the value of goodwi…Preview