Goodwill

1. The profit for the five years of a firm are as follows – year 2013 Rs. 4,00,000; year 2014 Rs. 3,98,000;
year 2015 Rs. 4,50,000; year 2016 Rs. 4,45,000 and year 2017 Rs. 5,00,000. Calculate goodwill of the
firm on the basis of 4 years purchase of 5 years average profits.

2. The profits of firm for the five years are as follows: Year Profit (Rs.) 2012–13 20,000 2013–14 24,000
2014–15 30,000 2015–16 25,000 2016–17 18,000 Calculate the value of goodwill on the basis of
three years’ purchase of weighted average profits based on weights 1,2,3,4 and 5 respectively.

3. Calculate goodwill of a firm on the basis of three year’ purchase of the weighted average profits of
the last four years. The profit of the last four years were: 2012 Rs. 20,200; 2013 Rs. 24,800; 2014 Rs.
20,000 and 2015 Rs. 30,000. The weights assigned to each year are : 2012 – 1; 2013 – 2; 2014 – 3
and 2015 – 4. You are supplied the following information: 1. On September 1, 2014 a major plant
repair was undertaken for Rs. 6,000, which was charged to revenue. The said sum is to be
capitalised for goodwill calculation subject to adjustment of depreciation of 10% p.a. on reducing
balance method. 2. The Closing Stock for the year 2013 was overvalued by Rs. 2,400. 3. To cover
management cost an annual charge of Rs. 4,800 should be made for purpose of goodwill valuation

4. The books of a business showed that the firm’s capital employed on December 31, 2015, Rs.
5,00,000 and the profits for the last five years were: 2010–Rs. 40,000: 2012-Rs. 50,000; 2013-Rs.
55,000; 2014- Rs.70,000 and 2015-Rs. 85,000. You are required to find out the value of goodwill
based on 3 years purchase of the super profits of the business, given that the normal rate of return
is 10%.

5. The capital of the firm of Anu and Benu is Rs. 1,00,000 and the market rate of interest is 15%.
Annual salary to partners is Rs. 6,000 each. The profits for the last 3 years were Rs. 30,000; Rs.
36,000 and Rs. 42,000. Goodwill is to be valued at 2 years purchase of the last 3 years’ average
super profits. Calculate the goodwill of the firm.

6. A business has earned average profits of Rs. 1,00,000 during the last few years and the normal rate
of return in a similar business is 10%. Ascertain the value of goodwill by capitalisation average
profits method, given that the value of net assets of the business is Rs. 8,20,000.

7. 1. The goodwill of a firm is to be worked out at three years’ purchase of the average profits of the
last five years which are as follows: Years Profits (Loss) (Rs.) 2012 10,000 2013 15,000 2014 4,000
2015 (5,000) 2016 6,000

2. The capital of the firm is Rs. 1,00,000 and normal rate of return is 8%, the average profits for last
5 years are Rs. 12,000 and goodwill is to be worked out at 3 years’ purchase of super profits,

3. Rama Brothers earn an average profit of Rs. 30,000 with a capital of Rs. 2,00,000. The normal rate
of return in the business is 10%. Using capitalisation of super profits method work out the value the
goodwill of the firm

8. Sunil and Dalip are partners in a firm sharing profits and losses in the ratio of 5:3. Sachin is admitted
in the firm for 1/5th share of profits. He brings in Rs. 20,000 as capital and Rs. 4,000 as his share of
goodwill by cheque. Give the necessary journal entries, (a) When partners decided to retain
 goodwill in business. (b) When the amount of goodwill is fully withdrawn. (c) When 50% of the
amount of goodwill is withdrawn.

9. Vijay and Sanjay are partners in a firm sharing profits and losses in the ratio of 3:2. They admitted
Ajay into partnership with 1/4 share in profits. Ajay brings in Rs. 30,000 for capital and the requisite
amount of premium in cash. The goodwill of the firm is valued at Rs. 20,000. The new profit sharing
ratio is 2:1:1. Vijay and Sanjay withdraw their share of goodwill. Give necessary journal entries

10. Srikant and Raman are partners in a firm sharing profits and losses in the ratio of 3:2. They admit
Venkat into partnership with 1/3 share in the profits. Venkat brings in Rs. 30,000 as his capital. He
also brings in the necessary amount for his share of goodwill. On the date of admission, the
goodwill is valued at Rs. 24,000 and the goodwill account appears in the books at Rs. 12,000. Venkat
brings in the necessary amount for his share of goodwill and agrees that the existing goodwill
account be written off. Record the necessary journal entries in the books of the firm.

11. Ahuja and Barua are partners in a firm sharing profits and losses in the ratio of 3:2. They decide to
admit Chaudhary into partnership for 1/5 share of profits, which he acquires equally from Ahuja
and Barua. Goodwill is valued at Rs. 30,000. Chaudhary brings in Rs. 16,000 as his capital but is not
in a position to bring any amount for goodwill. No goodwill account exists in books of the firm.
Goodwill account is to be raised at full value. Record the necessary journal entries

12. Ram and Rahim are partners in a firm sharing profits and losses in the ratio of 3:2. Rahul is admitted
into partnership for 1/3 share in profits. He brings in Rs. 10,000 as capital, but is not in a position to
bring any amount for his share of goodwill which has been valued at Rs. 30,000. Give necessary
journal entries under each of the following situations:

(a) When there is no goodwill appearing in the books of the firm; and
(b) When the goodwill appears at Rs 15,000 in the books of the firm

13. Hem and Nem are partners in a firm sharing profits in the ratio of 3:2. Their capitals were Rs. 80,000
and Rs. 50,000 respectively. They admitted Sam on Jan. 1, 2017 as a new partner for 1/5 share in
the future profits. Sam brought Rs. 60,000 as his capital. Calculate the value of goodwill of the firm
and record necessary journal entries on Sam’s admission, if: (a) Sam brings his share of goodwill (b)
Sam does not bring his share of goodwill
14. Compute the value of goodwill on the basis of four years’ purchase of the average profits based on
the last five years? The profits for the last five years were as follows: Rs. 2015 40,000 2016 50,000
2017 60,000 2018 50,000 2019 60,000 (Ans : Rs. 2,08,000)

15. Firm’s Capital in a business is Rs. 2,00,000. The normal rate of return on firm’s capital is 15%. During
the year 2015 the firm earned a profit of Rs. 48,000. Calculate goodwill on the basis of 3 years
purchase of super profit? (Ans : Rs. 54,000)

16. The books of Ram and Bharat showed that the firm’s capital on 31.12.2016 was Rs. 5,00,000 and
the profits for the last 5 years : 2015 Rs. 40,000; 2014 Rs. 50,000; 2013 Rs. 55,000; 2012 Rs. 70,000
and 2011 Rs. 85,000. Calculate Rationalised 2023-24 Admission of a Partner 101 the value of
goodwill on the basis of 3 years purchase of the average super profits of the last 5 years assuming
that the normal rate of return is 10%? (Ans : Rs. 30,000)
17. Rajan and Rajani are partners in a firm. Their capitals were Rajan Rs. 3,00,000; Rajani Rs. 2,00,000.
During the year 2015 the firm earned a profit of Rs. 1,50,000. Calculate the value of goodwill of the
firm by capitalisation method assuming that the normal rate of return is 20%? (Ans : Rs. 2,50,000)

18. A business has earned average profits of Rs. 1,00,000 during the last few years. Find out the value of
goodwill by capitalisation method, given that the assets of the business are Rs. 10,00,000 and its
external liabilities are Rs. 1,80,000. The normal rate of return is 10%? (Ans : Rs. 1,80,000)

19. 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 1/5 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: a) When the amount of
goodwill is retained in the business. b) When the amount of goodwill is fully withdrawn. c) When
50% of the amount of goodwill is withdrawn. d) When goodwill is paid privately.

20. A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They decide to admit C
into partnership with 1/4 share in profits. C will bring in Rs. 30,000 for capital and the requisite
amount of goodwill premium in cash. The goodwill of the firm is valued at Rs, 20,000. The new
profit sharing ratio is 2:1:1. A and B withdraw their share of goodwill. Give necessary journal
entries?

21. Arti and Bharti are partners in a firm sharing profits in 3:2 ratio, They admitted Sarthi for 1/4 share
in the profits of the firm. Sarthi brings Rs. 50,000 for his capital and Rs. 10,000 for his 1/4 share of
goodwill. Goodwill already appears in the books of Arti and Bharti at Rs. 5,000. the new profit
sharing ratio between Arti, Bharti and Sarthi will be 2:1:1. Record the necessary journal entries in
the books of the new firm? [Hint: Existing goodwill written-off in old profit sharing ratio]

22. X and Y are partners in a firm sharing profits and losses in 4:3 ratio. They admitted Z for 1/8 share. Z
brought Rs. 20,000 for his capital and Rs. 7,000 for his 1/8 share of goodwill. Goodwill already
appears in the books at Rs. 40,000. Show necessary journal entries in the books of X, Y and Z?

23. Aditya and Balan are partners sharing profits and losses in 3:2 ratio. They admitted Christopher for
1/4 share in the profits. The new profit sharing ratio agreed was 2:1:1. Christopher brought Rs.
50,000 for his capital. His share of goodwill was agreed to at Rs. 15,000. Christopher could bring
only Rs. 10,000 Rationalised 2023-24 102 Accountancy – Not-for-Profit Organisation and Partnership
Accounts out of his share of goodwill. Record necessary journal entries in the books of the firm?

24. Amar and Samar were partners in a firm sharing profits and losses in 3:1 ratio. They admitted
Kanwar for 1/4 share of profits. Kanwar could not bring his share of goodwill premium in cash. The
Goodwill of the firm was valued at Rs. 80,000 on Kanwar’s admission. Record necessary journal
entry for goodwill on Kanwar’s admission.

25. Mohan Lal and Sohan Lal were partners in a firm sharing profits and losses in 3:2 ratio. They
admitted Ram Lal for 1/4 share on 1.1.2013. It was agreed that goodwill of the firm will be valued at
3 years purchase of the average profits of last 4 years which were Rs. 50,000 for 2013, Rs. 60,000 for
2014, Rs. 90,000 for 2015 and Rs. 70,000 for 2016. Ram Lal did not bring his share of goodwill
premium in cash. Record the necessary journal entries in the books of the firm on Ram Lal’s
admission when:
 a) Goodwill already appears in the books at Rs. 2,02,500.
b) Goodwill appears in the books at Rs. 2,500.
c) Goodwill appears in the books at Rs. 2,05,000.

26. Rajesh and Mukesh are equal partners in a firm. They admit Hari into partnership and the new
profit sharing ratio between Rajesh, Mukesh and Hari is 4:3:2. On Hari’s admission goodwill of the
firm is valued at Rs. 36,000. Hari is unable to bring his share of goodwill premium in cash. Rajesh,
Mukesh and Hari decided not to show goodwill in their balance sheet. Record necessary journal
entries for the treatment of goodwill on Hari’s admission.

27. Amar and Akbar are equal partners in a firm. They admitted Anthony as a new partner and the new
profit sharing ratio is 4:3:2. Anthony could not bring this share of goodwill Rs. 45,000 in cash. It is
decided to do adjustment for goodwill without opening goodwill account. Pass the necessary
journal entry for the treatment of goodwill?