Financial Accounting || Partnership || Study Notes || CMA Intermediate

 Partnership 

Types of Goodwill

• Purchased Goodwill
• Self-Generated Goodwill

Valuation Of Goodwill

• Average Profit Method  
• Super Profit Method
• Capitalisaton Method
• Annuity Method

1.Average Profit Method    

• Simple Average Profit 

• Weighted Average Profit

Goodwill =  Average Profit  X   Year Purchase Price

# Profit = Abnormal Gain (-)  ,  Abnormal Loss (+) , Closing Stock Undervalue (+) , Closing Stock Overvalue (-) next yr (+) , Opening Stock 

2.Super Profit

 Super Profit =  Average Profit - Normal Profit

Goodwill = Super Profit  X  Year Purchase Price

# Normal Profit  = Average Capital Employed X Normal Rate of                                                                                                        Return

Average Capital Employed

1. Opening Capital Employed + Closing Capital Employed  /  2
2. (Capital + Reserve)  -  (Goodwill + Non-trade Inv. + Fitious Assets)
3. (All Liabilities - Capital & Reserve) - (All Assets - Goodwill + Non-trade Inv. + Fitious Assets)

3.Capitalised Method

• Capitalised Of Average Profit

       Goodwill =

                Capital Value of Firm                           ( XX )

  Less:-     Actual Capital Employed at end            ( XX)     

• Capitalised Of Super Profit

  Goodwill =       Super Profit    X          100      

                                                    Normal ROR

*Normal Profit  = A. Cap Emp.  X N.Ror

4.Annuity Method

Goodwill = Average profit/ Super Profit  X Annuity Value

Profit Ratio

• Sacrificing Ratio  =  OR  -  NR
• Gaining Ratio   =  NR  -  OR

Treatment Of Goodwill

• In Case of Change in Profit sharing Ratio

Gaining partner Capital  A/c      Dr.             XX

     To  Sacrificing Partner Capital A/c          XX

• In Case of Admission of a new partner

    Gaining partner Capital  A/c      Dr.             XX

         To  Sacrificing Partner Capital A/c          XX

• In Case of Retirement/Death of a  partner

       Gaining partner Capital  A/c      Dr.             XX

            To  Sacrificing Partner Capital A/c          XX

Practice Question

Multiple choice question

• Ram and sham formed a partnership to undertaken a office Repaire work at  Saket. The partnership is called :- 

1. Particular partnership
2. Limited Partnership
3. Partnership at will
4. Limited Libility Partnershp

• Ram and sham formed a partnership to conduct a shoes business. The partnership is called :- 
1. Particular partnership
2. Limited Partnership
3. Partnership at will
4. Limited Libility Partnershp

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