Goodwill Calculation and Partner Revaluation
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Goodwill Calculation and Partner Revaluation

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Questions and Answers

What is the formula for calculating interest using the direct method?

  • Interest = Total product x Rate of interest x 1/12
  • Interest = Total drawings x Rate of interest x (number of months outstanding) / 10
  • Interest = Total drawings x Average period x Rate of interest x 1 / 12
  • Interest = Amount of drawings x Rate of interest x number of outstanding months / 12 (correct)

    • How is the average period calculated for the average period method?

  • Average period = shortest period outstanding + longest period outstanding / 2 (correct)
  • Average period = total drawings / number of outstanding months
  • Average period = longest period outstanding - shortest period outstanding / 2
  • Average period = beginning of each month + end of each month / 2

    • In the product method, what does the total product represent?

  • The cumulative interest on all drawings made by partners
  • The total amount of drawings multiplied by their respective outstanding periods (correct)
  • The total capital contributed by the partners
  • The sum of all withdrawals during the financial year

    • Which statement accurately describes the implication of fixed capitals in the partners' accounts?

    <p>Capitals remain constant, and only profits or losses affect the partners' accounts.</p> Signup and view all the answers

    What is the interest calculation method utilized when the capitals are fluctuating?

    <p>Interest may vary depending on the period of drawings incurred.</p> Signup and view all the answers

    How is the goodwill of the firm calculated based on the average profits?

    <p>By taking 4 years' purchase of the average profits</p> Signup and view all the answers

    What was the total capital employed at the end of 2015?

    <p>Rs. 5,00,000</p> Signup and view all the answers

    What is the normal rate of return mentioned for a similar business?

    <p>10%</p> Signup and view all the answers

    What is the correct adjustment for machinery during the revaluation?

    <p>Increase by 20%</p> Signup and view all the answers

    What was the profit on revaluation according to the adjustments made?

    <p>Rs. 6,000</p> Signup and view all the answers

    What amount should 'C' bring in as goodwill when joining the partnership?

    <p>Rs. 15,000</p> Signup and view all the answers

    After revaluation, what will be the new capital balance for partner A?

    <p>Rs. 82,000</p> Signup and view all the answers

    Which assets were included in the balance sheet at their revalued amounts?

    <p>Stock and Buildings</p> Signup and view all the answers

    How much interest on capital should Sachin receive for the year ending 31-3-2016?

    <p>Rs. 4,000</p> Signup and view all the answers

    What is the total amount of interest payable on X and Y's capital for the year 2012-13?

    <p>Rs. 25,000</p> Signup and view all the answers

    What is the total interest on Shekhar’s drawings for the year ended 31/3/14?

    <p>Rs. 480</p> Signup and view all the answers

    Calculate the interest on Prasanna’s total drawings for the year ended 2013-14 using the product method.

    <p>Rs. 504</p> Signup and view all the answers

    How much total interest will Uma incur on her monthly withdrawals for the year ending 30th September 2013?

    <p>Rs. 384</p> Signup and view all the answers

    What is the total interest on Uma’s quarterly withdrawals for the year ending 31.3.14?

    <p>Rs. 960</p> Signup and view all the answers

    What is the total interest on Bharath's withdrawals made at the end of each quarter for the year ending 31.3.14?

    <p>Rs. 960</p> Signup and view all the answers

    What amount should Pratham receive as yearly salary from the partnership?

    <p>Rs. 6,000</p> Signup and view all the answers

    What is the total loss on the Revaluation Account?

    <p>Rs. 3,000</p> Signup and view all the answers

    What is the total balance of Partners' Capital Accounts after the admission of Shiva?

    <p>Rs. 1,22,000</p> Signup and view all the answers

    What is the amount of goodwill valued at for the firm?

    <p>Rs. 14,000</p> Signup and view all the answers

    What is the cash amount brought in by the new partner, Shiva?

    <p>Rs. 25,000</p> Signup and view all the answers

    Which asset reflects a depreciation in the balance sheet?

    <p>Machinery</p> Signup and view all the answers

    How much is the provision for doubtful debts increased?

    <p>Rs. 1,000</p> Signup and view all the answers

    What is the total value of assets in the Balance Sheet as of 31.03.2017?

    <p>Rs. 1,50,000</p> Signup and view all the answers

    What is the new profit sharing ratio after the admission of the new partner?

    <p>5:3:2</p> Signup and view all the answers

    Which account reflects the profit attributed to the share in loss of a deceased partner?

    <p>Profit &amp; Loss A/c (share in loss)</p> Signup and view all the answers

    What would be credited in the deceased partners executors account for profit on revaluation?

    <p>Revaluation A/c (profit on revaluation)</p> Signup and view all the answers

    Which entry represents the final balance transferred for a deceased partner in the executors account?

    <p>To deceased partners executors A/c (final balance transferred)</p> Signup and view all the answers

    Which component of the deceased partner's executors account is used to record deceased partners drawings?

    <p>To deceased partners drawings A/c</p> Signup and view all the answers

    What account is debited to indicate losses on the revaluation of assets in the executor's account?

    <p>Revaluation A/c (loss on revaluation)</p> Signup and view all the answers

    Study Notes

    Goodwill Calculation

    • Goodwill can be calculated using different methods, including:
      • Years' Purchase of Average Profits: This method multiplies the average profits of a company by a predetermined number of years to arrive at the goodwill value.
      • Super Profits Method: This method calculates goodwill based on the excess profit a company earns above its normal rate of return on capital employed.
      • Capitalization of Average Profits: This method uses the average profits of a company and the normal rate of return to determine the capital employed and then calculates goodwill as the difference between the capital employed and the net assets.

    Partner Admissions and Revaluation

    • When a new partner is admitted to a firm, existing partners' capital accounts may need to be adjusted.
    • Revaluation Account: A revaluation account reflects changes in the value of assets and liabilities at the time of a new partner's admission.
      • It records any profits or losses resulting from the revaluation.
      • This account is closed by transferring the balance to the partners' capital accounts.

    Interest on Drawings

    • Drawings: These are amounts withdrawn by partners from the firm's capital during the year.
    • Interest on Drawings: This is an expense charged to partners for withdrawing funds before the end of the financial year.
      • Different methods for calculating interest on drawings include:
        • Direct Method: This method calculates interest for each individual drawing, taking into account the period during which the money was outstanding.
        • Product Method: This method calculates the total interest by multiplying the sum of the individual products of drawings and the period outstanding by the rate of interest.
        • Average Period Method: This method uses a simplified approach by calculating the average period for which drawings are outstanding and then multiplying by the total drawings and the interest rate.

    Partner’s Capital Accounts

    • Capital accounts track the investments and withdrawals of the partners.
    • They can be maintained under fixed or fluctuating capital methods, which affect how profits and losses are distributed and how new partner’s capital is allocated.

    Profit and Loss Appropriation Account

    • This account shows how profits and losses are distributed among partners, taking into account factors like interest on capital, drawings, salaries, and commissions.
    • It's a separate account from the profit and loss account, and is created to allocate profit/loss according to the partnership agreement.

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    Related Documents

    II PUC Accountancy I Term 24-25 PDF

    Description

    Explore the principles of goodwill calculation and parter admissions in firms. This quiz covers various methods to calculate goodwill and the need for revaluation accounts during partner changes. Test your understanding of these key accounting concepts.

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