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Question
State whether the following statements is true or false :
Retiring partner is entitled to his share of goodwill.
Options
True
False
Solution
True
Explanation: The remaining/continuing partners need to compensate the outgoing (retiring/deceased) partner. This is because after the retirement/death of a partner, the fruits of the collective past performances and reputation will be shared only by the continuing partners. Hence, the remaining partners compensate the retiring or the deceased partner by entitling him/her to a share of the firm's goodwill.
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RELATED QUESTIONS
Kavi, Ravi, Kumar and Guru were partners in the firm sharing profits in the ratio of 3:2:2:1. On 1.2.2017, Guru retired and the new profit sharing ratio decided between Kavi, Ravi and Kumar were 3:1:1. On Guru’s retirement, the goodwill of the firm was valued at Rs 3, 60,000. Showing your working notes clearly, pass necessary journal entry in the books of the firm for the treatment of goodwill on Guru’s retirement
Ashish, Satish and Manish were partners in business profits and losses in the ratio of 3 : 1 : 1 respectively. Their Balance Sheet as on 31st March, 2016 was as follows :
Balance Sheet as on 31st March, 2016
| Liabilities | Amount | Assets | Amount |
| Capital accounts : | Plant and machinery | 70,000 | |
| Ashish | 80,000 | Stock | 50,000 |
| Satish | 60,000 | Debtors | 40,000 |
| Manish | 50,000 | Cash | 60,000 |
| Creditors | 10,000 | ||
| Reserve fund | 20,000 | ||
| 2,20,000 | 2,20,000 |
Manish died on 1st October, 2016 and the partnership deed provided that :
(1) The deceased partner to be given his share of profit upto the date of death on the basis of the profit of the previous year.
(2) His share of goodwill will be calculated on the basis of two years' purchase of average profit of the last four years
The net profits for the last four years were :
First year : Rs 1,40,000, Second year : Rs 1,10,000
Third year : Rs 90,000. Fourth year : Rs 60,000.
(3) Plant and machinery to be valued at Rs. 80,000. Reserve for doubtful debts of Rs. 4,000 to be created.
(4) The drawings of Manish upto the date of death amounted to `Rs 40,000.
(5) Interest on capital is to be allowed at 10% p.a. and interest on drawings is charged at 6% p.a.
Prepare :
(1) Profit and Loss Adjustment Account.
(2) Manish's Capital Account.
(3) Wording of Manish's share in profit and goodwill.
Write the word/term or phrase which can substitute the following statement.
Account which is debited when new partner brings cash for his share of goodwill.
Answer in one sentence only.
How would you adjust retiring partner’s share of goodwill without opening goodwill account?
Select the most appropriate answer from the alternatives given below :
If the goodwill is raised to the extent of retiring partners share ___________ account is to be debited.
State whether the following statements is true or false :
If goodwill is written off retiring partner’s capital account is debited.
Complete the following sentence.
"If goodwill already appears in the books, it will be written off by debiting all partner's capital account in their ______ ratio"?
On retirement/death of a partner, the retiring/deceased partner's capital account will be credited with ______
Gobind, Hari and Pratap are partners. On the retirement of Gobind, the goodwill already appears on the Balance Sheet at Rs. 24,000. The goodwill will be written off ______
Which Accounting standard states that Goodwill, in general, is recorded in the books only when some consideration in money or money's worth has been paid for it?
According to AS-26 which goodwill is recorded in the books?
What journal entry will be recorded for writing off the goodwill already existing in Balance Sheet at the time of retirement of a partner?
How Goodwill is recorded on the retirement of a partner?
Madhu, Manav and Mukul were partners in a firm sharing profits in the ratio of 3 : 2: 1. On 31st March, 2021 Mukul retired from the firm. On Mukul's retirement, goodwill of the firm was valued at ₹ 3,00,000. Pass necessary journal entry for the treatment of goodwill without opening Goodwill Account on Mukul's retirement.
Puneet, Purav and Parth were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 1. The firm closes its books on 31st March every year. As per the terms of partnership deed, on the death of any partner, the Goodwill of the firm will be calculated on the basis of 3 times the average profits of last 4 years. Puneet died on 1st July, 2021. The profits for last four years were:
| Year | Profit (₹) |
| 2017 - 18 | 90,000 |
| 2018 - 19 | 1,00,000 |
| 2019 - 20 | 1,30,000 |
| 2020 - 21 | 80,000 |
Puneet's share of profit up to the date of death was to be calculated on the basis of previous year's profit.
- Calculate goodwill of the firm and Puneet's share of goodwill.
- Calculate Puneet's share in the profits of the firm till the date of his death.
- Pass necessary journal entries for the treatment of goodwill without opening goodwill account and for Puneet's share of profit at the time of his death.
David, Dolly and Divya are partners in a firm sharing profits and losses in the ratio 3 : 2 : 1. Divya retired from the firm and David and Dolly decided to share future profits & losses in the ratio 3 : 2. At the time of Divya's retirement, the goodwill of the firm was valued at ₹ 90,000.
Pass the necessary journal entry for treatment of goodwill without opening goodwill account on Divya's retirement.
Vibha, Sudha and Ashish were partners in a firm sharing profits in the ratio 2:3:1. Sudha retired and the balance in her capital account after making necessary adjustments on account of reserves, revaluation of assets and re-assessment of liabilities was ₹ 85,000. Vibha and Ashish agreed to pay Sudha ₹ 1,15,000 in full settlement of her claim. Record the necessary journal entry for goodwill on Sudha's retirement.
Kamal, Rahul and Neeraj were partners in a firm sharing profits and losses in the ratio of 5: 3: 2. On 31st March, 2002, their Balance Sheet was as under:
| Balance Sheet of Kamal, Rahul and Neeraj on 31st March, 2022 | ||||
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) |
| Capitals: | Land and Building | 1,70,000 | ||
| Kamal | 1,20,000 | 3,60,000 | Plant and Machinery | 2,60,000 |
| Rahul | 1,20,000 | Stock | 1,00,000 | |
| Neeraj | 1,20,000 | Debtors | 80,000 | |
| General Reserve | 1,20,000 | Cash | 50,000 | |
| Sundry Creditors | 1,80,000 | |||
| 6,60,000 | 6,60,000 | |||
On the above date, Rahul retired and following terms are agreed upon:
- Goodwill of the firm was valued at ₹ 3,50,000.
- An item of ₹ 10,000 included in sundry creditors is not likely to be claimed and hence written off. Stock was valued at ₹ 90,000.
- Capital of the new firm was fixed a ₹ 2,10,000 and the same will be adjusted in the profit sharing ratio of the remaining partners. For this purpose the required cash will be brought in or paid off as the case may be.
- Amount payable to Rahul will be transferred to his loan account.
Prepare Revaluation Account and Partners' Capital Accounts on Rahul's retirement.
