Partnership and LLP AccountsQ-3 | Partnership and LLP AccountsQuestion 5192 of 108
All Questions

Mr. X gives the following particulars in respect of business carried on by him: Particulars Amount Capital Invested in business 9,00,000 Market rate of interest on investment 8% Rate of risk return on capital invested in business 3% Remuneration per annum from alternative employment of proprietor if he was not engaged in business 36,000 The business earned profits of 2,40,000, 2,16,000 and 3,00,000 in the years 2018, 2019 and 2021 respectively but made a loss of 36,000 in the year 2020. Compute the value of Goodwill on the basis of 6 years' purchase of super profits of the business, calculated on the basis of average profit of last four years. [June 2022, 5 Marks]; [MTP Jan. 2025]

For any discrepancies in this question, email contact@cadada.in

Ad

Detailed Solution & Explanation

Calculation of Goodwill by Super Profit Method a. Calculation of Average Profit Average Profit = total profit / no. of years = 2,40,000 + 2,16,000 + 3,00,000 – 36,000 / 4 = 1,80,000 Less: Annual Remuneration = (36,000) Average Profits = 1,44,000 b. Normal Profit = Capital Invested X Rate of Return / 100 = 9,00,000 x 11 / 100 = 99,000 c. Super Profit = Average Profit- Normal Profit = 1,44,000-99,000 = 45,000 d. Goodwill = Super Profit X No. of years Purchase = 45,000 X 6 = 2,70,000

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.

Related Comparison Tables

Revenue Expenditure vs Capital Expenditure: AccountsTrading Account vs P&L Account: Final Accounts ExplainedSLM vs WDV Depreciation: CA Foundation Accounts

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]

What is Piecemeal payments method under Partnership Dissolution? Briefly explain the two methods followed for determining the order in which the payments are made? [CA Inter May 2010, 2 Marks]

Explain Garner v. Murray rule applicable in the case of partnership firms. State, when is this rule not applicable? [CA Inter May 2013, 4 Marks]

Explain the Limitations of Liability of Limited Liability Partnership is of Liability of Limited Liability (LLP) and its partners.

Under what circumstances, an LLP can be wound up by the Tribunal. [CA Inter May 2015, 4 Marks]

Rules applicable in absence of partnership deed OR Discuss the rules if there is no Partnership Agreement. [Jan. 2021, 5 Marks]

Ready to Master Partnership and LLP Accounts?

Practice all 108 questions with instant feedback, earn XP, track your streaks, and ace your CA Foundation exam.

Start Practicing — It's Free