NOTES


CA-Foundation > Principles and Practice of Accounting > Partnership Accounts - Treatment of Goodwill in Partnership Accounts >

Partnership Accounts - Treatment of Goodwill in Partnership Accounts Notes

Q1. Distinguish between super profit basis and capitalisation basis

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Q2.   Wise, clever and dull were trading in partnership sharing profits and losses 4:3:3 respectively. The accounts of the firm are made upto 31st December every year.
The partnership provided, interlia, that:
In the death of a partner the goodwill was to be valued at three years purchase of average profits of the years upto the date of the death after deducting interest @ 8 percent on capital employed and a fair remuneration of each partner. The profits are assumed to be earned evenly throughout the year.
On 30th june,2016, wise died and it  was agreed on his death to adjust goodwill in the capital accounts without showing any amount of goodwill in the balance sheet.
It was agreed for the purpose of valuation of goodwill that the fair remuneration for work done by each partner would be Rs.15,000 per annum and that the capital employed would be Rs.1,56,000. Clever and dull were to continue the partnership, sharing profits and losses equality after the death of wise.
The following were the amounts of profits of earlier years before charging interest on capital employed.  

 

Rs.

2013

67,200

2014

75,600

2015

72,000

2016

62,400
  You are required to compute the value of goodwill and show the adjustment there of in the books of the firm.

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Q3.

Firm’s Goodwill is to be valued at 2 years purchase of Normal Average Profits of the last 3 years. The profits of Bikram’s business for the last three years are as follows -

Year

Amount (in)

2006

Rs. 80,000 (including an Abnormal Gain of Rs. 10,000)

2007

Rs. 1,00,000 (after charging an Abnormal Loss of Rs. 20,000)

2008

Rs. 90,000 (excluding Rs. 10,000 as insurance premium on Firm’s Property, now to be insured)

Calculate the value of Firm’s Goodwill.

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Q4.

A, B, C and D were sharing profits equally. On 1st January, they agreed that future profits will be shared as 4:3:2:1. Upon change in PSR, the Goodwill of the Firm is valued at Rs. 4,00,000. What will be the adjustment required in the Capitals of the Partners, to record the change in PSR? What will be the effect of Rs. 1,00,000 Goodwill already appearing in the Firm’s books?

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Q5.

Ashwin and Balu had Rs. 10,000 and Rs. 6,000 as Capitals respectively 1st April 2008. They agree to share profits in the capital ratio. They have following transactions during the year -

 

Capital introduced

Capital withdrawn

Ashwin

Balu

Ashwin

Balu

1st June

Rs. 2,000

-

-

-

1st July

-

Rs. 7,000

Rs. 3,000

-

1st September

Rs. 4,000

-

-

Rs. 6,000

31st December

-

Rs. 8,000

Rs. 8,000

-

Determine the ratio in which the Partners will share the profits as at present.

What will be the adjustment required if the Partners decide to change the Profit Sharing Ratio to 2:3, with effect from 1st April 2009, the agreed value of Goodwill being Rs. 60,000?

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