Partnership and LLP AccountsQ- 15 | Partnership and LLP AccountsQuestion 4871 of 108

The following information given below: (i) Total Assets 10,00,000 (ii) External Liabilities 1,80,000 (iii) Normal Rate of Return 10% (iv) Average Net Profit of last five years 1,00,000 You are required to calculate goodwill by applying: (i) Capitalization Method and (ii) 3 year's purchase of super profits. [RTP Jan. 2025]

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Detailed Solution & Explanation

Goodwill as per Capitalization Method: (1) Capital Employed (Net Assets) = Total Assets - External Liabilities = 10,00,000 - 1,80,000 = 8,20,000 Normal Profit = 10% of 8,20,000 = 82,000 Super Profit = Average Profit - Normal Profit = 1,00,000 - 82,000 = 18,000 Goodwill = Super Profit X 100 / Normal rate of Return = 18,000 × 100/10 = 1,80,000 (ii) Goodwill as per 3 year's purchase of super profits: Goodwill = Super Profit X Number of Year's purchased = 18,000 × 3 = 54,000

About This Chapter: Partnership & Companies

Paper

Paper 1: Accounting

Weightage

15-20%

Key Topics

Admission, Retirement, Death, Shares, Debentures

This chapter covers Admission, Retirement, Death, Shares, Debentures and is part of Paper 1: Accounting in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 15-20% weightage. Focus on understanding core concepts rather than memorizing.

Key Concepts to Understand

Goodwill

An intangible asset representing the good reputation, brand name, customer loyalty, and earning capacity of a business over and above its net tangible assets. It arises in accounting during partnership changes or business acquisitions.

Net Profit

The final profit of a business after deducting all indirect operating expenses, non-operating expenses, and taxes from Gross Profit. It represents the actual earnings available to the owners.

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More Questions from Partnership and LLP Accounts

Following are the details of Assets and Liabilities of Mr. Sarthak for the year ended 31 March, 2023 and 31 March, 2024: 31.03.2023 31.03.2024 Assets Buildings Furniture Inventory Sundry debtors Cash at bank Cash in hand Liabilities: Loans Sundry Creditors 2,00,000 75,000 1,05,000 68,000 72,500 2,400 1,50,000 58,400 ? ? 1,95,000 94,000 86,800 3,800 1,25,000 79,500 It was decided to depreciate Building by 5% p.a. and Furniture by 10% p.a. On 1st June, 2023 an additional capital of 40,000 was brought in the business. Proprietor has withdrawn @ ₹ 2,500 p.m. for meeting the family expenses. Prepare Statement of Affairs as on 31 March, 2023 and 31 March, 2024. Find the profit or loss earned by Mr. Sarthak for the year ended 31st March, 2024. [Jan. 2025, 5 Marks]

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