Goodwill - Nature and Valuation - Test Papers

CBSE Test Paper 01
Goodwill - Nature and Valuation

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1. As per Accounting Standard-26,

   1. both purchased and self-generated goodwill are accounted in the books of account

   2. purchased goodwill is accounted in the books of account

   3. None of these

   4. self-generated goodwill is accounted in the books of account

2. Calculate the average profit of last four year's profits. The profits of the last four years were:

   2008	27000
   2009	39000
   2010	16000(loss)
   2011	40000

   1. ₹10000

   2. Rs. 22500

   3. ₹30000

   4. ₹40000

3. The excess amount which the firm gets on selling its business over and above the net value is

   1. Surplus

   2. Goodwill

   3. Super profits.

   4. Reserve

4. Goodwill is valued

   1. at the time of change in profit-sharing ratio

   2. at the time of retirement or death of a partner

   3. at the time of admission of a partner

   4. All of these

5. Goodwill under Average Profit Method means

   1. None of these

   2. Normal profit ×$\times$ Number of year's purchase

   3. Super profit ×$\times$ Number of year's purchase

   4. Average profit ×$\times$ Number of year's purchase

6. Fill in the blanks:

   Average Profit = ________.

7. How does goodwill arise?

8. How does the factor ‘quality of product' affect the goodwill of a firm?

9. The profits and losses for last five years were
   1st year - Rs 3,000 (including an abnormal gain of 1,000)
   2nd year - Rs 7,000 (excluding Rs 2,000 as insurance premium)
   3rd year - Rs 2,000 (after charging an abnormal loss of Rs 1,000)
   4th year - Rs 3,000
   5th year - Rs 1,000 (Loss)
   Calculate the amount of Goodwill on the basis of 3 years purchase of last 5 years profits and losses.

10. What is Revaluation Account? How it is differ from Profit & Loss Appropriation A/c?

11. 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%. Find out the value of goodwill by

    1. Capitalisation of super profit method.
    2. Super profit method, if the goodwill is valued at 3 years’ purchase of super profit.

    The assets of the business were Rs 10,00,000 and its external liabilities Rs 1,80,000.

12. Neeraj and Dheeraj are carrying on a business of repairing electronic items. There are no other technicians for repairing electronic items in the locality. As the electric supply has a lot of fluctuations the equipments get damaged. Therefore, both the partners themselves do the repairing work to the satisfaction of the customers. The firm donates 10% of its profits to a Charitable Hospital of the locality for the medical treatment of persons below poverty line. State the two factors affecting the goodwill of the firm discussed in the above para. Also identify any two values which the firm is trying to propagate.

13. Cake and Muffin are partners sharing profits and losses in the ratio of 5: 4. On 1st April 2016, they admit Cookie as a new partner for 16$\frac{1}{6}$th share in the profits of the firm and the new ratio agreed upon is 3 : 2 : 1.
    Goodwill, at the time of Cookie's admission, is to be valued on the basis of capitalisation of the average profits of the last three years. Profits for the last three years were:

    Year ended 31st March 2014	₹39,000 (including an abnormal loss of ₹9,000)
    Year ended 31st March 2015	₹83,000 (including an abnormal loss of ₹8,000)
    Year ended 31st March 2016	₹72,000

    On 1st April 2016, the firm had assets of ₹8,00,000. Its creditors amounted ₹3,60,000. The firm had a Reserve Fund of ₹40,000 while Partners' Capital Account showed a balance of ₹4,00,000.
    The normal rate of return expected form this class of business is 13%.
    Cookie brings in ₹2,00,000 for her capital but is unable to bring in cash for her share of goodwill.
    You are required to:

    1. Calculate Cookie's share of Goodwill in the firm (Show your workings clearly).
    2. Pass Journal entries at the time of Cookie's admission.

14. X and Y are partners in a firm sharing profits in the ratio of 5 : 3.On March 1, 2017 they admitted Z as a new Partner. The new profit sharing ratio will be 4 : 3 : 2. Z brought in ₹1,00,000 in cash as his share of capital but could not bring any amount for goodwill in cash. The firm's goodwill on Z's admission was valued at ₹1,80,000. X and Y decided that Z can bring his share of premium for goodwill later or it can be adjusted against his share of profits. At the time of Z's admission goodwill existed in the books of the firm at ₹2,40,000.
    You are required to pass necessary journal entries in the books of the firm on Z's admission.

15. Bakul and Gokul were partners in a firm sharing profits and losses in the ratio of 2 : 1 with capitals of ₹40,000 and ₹30,000 respectively. They decided to admit Nakul into partnership on conditions that he would bring in ₹20,000 as his capital and ₹6,000 for his share of goodwill for 1/4th share of profits. Half of the amount of goodwill was withdrawn by the existing partners. The capital of the partners in the New firm was to be arranged in profit sharing ratio on the basis of Nakul's Capital and excess or deficit capital to be adjusted in cash. Give the necessary journal entries to record the transactions and show the capital accounts of the partners and the cash account.

CBSE Test Paper 01
Goodwill - Nature and Valuation

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Solution

1. (b) purchased goodwill is accounted in the books of account
   Explanation: purchased goodwill is accounted in the books of account
2. (b) Rs. 22500
   Explanation: Calculation of average profit when loss is given:
   1. Calculation of total profits earned during 4 years: 27,000 + 39,000 – 16,000 + 40,000 = 90,000
   2. Average profit = 90,000/4 = 22,500
3. (b) Goodwill
   Explanation: Goodwill
4. (d) All of these
   Explanation: All of these
5. (d) Average profit ×$\times$ Number of year's purchase
   Explanation: Average profit ×$\times$ Number of year's purchase

6. TotalProfitNo.ofrelevantyears$\frac{TotalProfit}{No.ofrelevantyears}$

7. Goodwill may arise due to factors like location, the efficiency of management, the trend of profits, the absence of competition, life span, relations, unique patent right. Goodwill arises when a company acquires another entire business. The amount of goodwill is the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase.

8. If the firm enjoys good reputation for its product quality, there will be higher sales and the value of its goodwill will increase because this will not only retain existing customers but also bring new customers too thereby increasing sales as well as customer base.

9. The amount of goodwill is the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase.

   Calculation of Goodwill
   Average maintainable profits
   Profits for 1st year (Rs 3,000 - Rs 1,000) = Rs 2,000
   Profits for 2nd year (Rs 7,000 - Rs 2,000) = Rs 5,000
   Profits for 3rd year (Rs 2,000 + Rs 1,000) = Rs 3,000
   Profits for 4th year = Rs 3.000
   Total profits= Rs 13,000
   Less : Loss for 5th year = Rs (1.000)
   Total Profit for last five years = Rs 12,000
   Average profits = Total profit /No. of years
   = Rs 12,000/5
   = Rs 2400
   Goodwill = Average profits ×$\times$No. of years’ purchase
   = Rs 2400 ×$\times$ 3
   = Rs 7200

10. Revaluation account is a nominal account which is prepared to record the change of assets and reassessment of liabilities. The profit or loss calculated through this account is transferred to the partners’ capital/current account in their old profit sharing ratio while Profit and Loss Appropriation Account is prepared for the division of profit among the partners.

    Revaluation account is prepared whenever there is change in profit sharing ratio between the partners due to any reason e.g. Between existing partners, Due to Admission of a new partner, Due to retirement/death of a partner, amalgamation of two partnership firms etc. to record profit or loss on revaluation. Main concept being whatever happened before change in ratio; belongs to partners in the old ratio and after change in the new ratio

    Profit and Loss Appropriation Account, on the other hand, is prepared every year to distribute profit as per the terms of partnership deed.

11. Working Notes:

    = 10,00,000 - 1,80,000 = Rs 8,20,000

    = 8,20,000 ×10100$\times \frac{10}{100}$= Rs 82,000

    = 1,00,000 - 82,000 = Rs 18,000

    1. As per Capitalisation of Super Profit Method
       Goodwill = Super Profit×100 Normal Rate of Return $\times \frac{100}{\text{ Normal Rate of Return }}$= 18,000×10010$\times \frac{100}{10}$= Rs 1,80,000
    2. As per  Super Profit Method
       Goodwill = Super Profit ×$\times$Number of Years' Purchase
                    = 18,000 ×$\times$3 = Rs 54,000
    • Capital Employed = Total Assets - External Liabilities
    • Normal Profit = Capital Employed× Normal Rate of Return 100$\times \frac{\text{ Normal Rate of Return }}{100}$
    • Super Profit = Average Profit - Normal Profit

12. The factors affecting the goodwill of the firm are:

    1. Locational Factor:

    If the firm is centrally located or located in a very prominent place, it can attract, more customers resulting in an increase in turnover. Therefore, locational factor should always be considered while ascertaining the value of goodwill.

    2. Nature of Business:

    This is another factor which also influences the value of goodwill which includes:

    (i) The nature of goods;

    (ii) Risk involved;

    (iii) Monopolistic nature of business;

    (iv) Benefits of patents and Trademarks; and

    (v) Easy access of raw materials, etc.

    The values which the firm is trying to propagate are:

    1. Sensitivity towards people belonging to lower-income group.
    2. Working towards customer satisfaction.
13. 1. Calculation of Cookie's Share of Goodwill in the firm:
       Calculation of Average Normal Profit:

       Year ended	Profit	₹
       31st March 2014	₹39,000 + ₹9,000	48,000
       31st March 2015	₹83,000 + ₹8,000	75,000
       31st March 2016		72,000
       		1,95,000

       Average Normal Profit = ₹1,95,0003$\frac{₹1,95,000}{3}$ = ₹65,000
       Capitalised Value of Average Profits =  Average Normal Profit  Normal Rate of Return ×100$\frac{\text{ Average Normal Profit }}{\text{ Normal Rate of Return }}\times 100$
       = Rs.65,00013×100=Rs.5,00,000$\frac{Rs.65,000}{13}\times 100=Rs.5,00,000$
       Capital Employed (Net Assets) = Total Assets - Outside Liabilities 
       = ₹8,00,000 - ₹3,60,000 = ₹4,40,000
       Goodwill = Capitalised Value of Average Profits - Net Assets
       = ₹5,00,000 - ₹4,40,000 = ₹60,000
       Cookie's Share of Goodwill =60,000×16=₹10,000$=60,000\times \frac{1}{6}=₹10,000$

    2. Date	Particulars		L.F	Dr.	Cr. (₹)
       2016 April 1	Bank A/c	Dr.		2,00,000
       	To Cookie's Capital A/c				2,00,000
       	(Amount of capital brought in cash)
       	Cookie's Current A/c	Dr.		10,000
       	To Cake's Capital A/c				3,333
       	To Muffin's Capital A/c				6,667
       	(Cookie's share of goodwill credited to sacrificing partners in their sacrificing ratio of 1 : 2)

       Calculation of Sacrificing Ratio:
       Cake's sacrifice = 59−36=10−918=118$\frac{5}{9}-\frac{3}{6}=\frac{10-9}{18}=\frac{1}{18}$
       Muffin's sacrifice = 49−26=8−618=218$\frac{4}{9}-\frac{2}{6}=\frac{8-6}{18}=\frac{2}{18}$
       Sacrificing Ratio of Cake and Muffin = 118:218$\frac{1}{18}:\frac{2}{18}$ or 1 : 2

14. Date	Particulars		L.F.	Dr.(₹)	Cr. (₹)
    2017
    March 1	X's Capital A/c	Dr.		1,50,000
    	Y's Capital A/c	Dr.		90,000
    	To Goodwill A/c				2,40,000
    	(Goodwill already existing in the books, now written of in old ratio i.e. 5 : 3)
    March 1	Bank A/c	Dr.		1,00,000
    	To Y's Capital A/c				1,00,000
    	(Amount brought in by Z as his capital)
    March 1	Z's Current A/c(29$\frac{2}{9}$ of 1,80,000)	Dr.		40,000
    	To X's Capital A/c				32,500
    	To Y's Capital A/c				7,500
    	(Es share of goodwill credited to X and Yin their sacrificing ratio 13 :3.)

    Working Note: Calculation of Sacrificing Ratio:
    Old Ratio - New Ratio
    X's Sacrifice 58−49=45−3272=1372$\frac{5}{8}-\frac{4}{9}=\frac{45-32}{72}=\frac{13}{72}$
    Y's Sacrifice= 38−39=27−2472=372$\frac{3}{8}-\frac{3}{9}=\frac{27-24}{72}=\frac{3}{72}$
    Thus Sacrificing ratio between X and Y = 13 : 3.

15. JOURNAL

    Date	Particulars		L.F	Dr.(₹)	Cr.(₹)
    	Bank A/c	Dr.		26,000
    	To Nakul's Capital A/c				20,000
    	To Premium for Goodwill A/c				6,000
    	(Capital and premium for goodwill brought in by Nakul)
    	Premium for Goodwill A/c	Dr.		6,.000
    	To Bakul's Capital A/c				4,000
    	To Gokul's Capital A/c				2,000
    	(Premium for goodwill credited to old partner's capital accounts)
    	Bakul's Capital A/c	Dr.		2,000
    	Gokul's Capital A/c	Dr.		1,000
    	To Bank A/c				3,000
    	(Half of the premium for goodwill withdrawn by Bakul and Gokul)
    	Bakul's Capital A/c(2)	Dr.		2,000
    	Gokul's Capital A/c(2)	Dr.		11,000
    	To Bank A/c				13,000
    	(Excess capital withdrawn by Bakul and Gokul)

    Dr.	CAPITAL ACCOUNTS						Cr.
    Particulars	Bakul	Gokul	Nakul	Particulars	Bakul	Gokul	Nakul
    	₹	₹	₹		₹	₹	₹
    To Bank A/c	2,000	1,000		By Balance b/d	40,000	30,000
    To Balance c/d	42,000	31,000	20,000	By Bank A/c	-	-	20,000
    				By Premium for Goodwill A/c	4,000	2,000	-
    	44,000	32,000	20,000		44,000	32,000	20,000
    To Bank A/c	2,000	11,000	-	By Balance b/d	42,000	31,000	20,000
    To Balance c/d	40,000	20,000	30,000
    	42,000	31,000	20,000		42,000	31,000	20,000

    Dr.	Bank Account		Cr.
    Particulars	₹	Particulars	₹
    To Nakul's capital A/c	20,000	By Bakul's Capital A/c	2,000
    To Premium for Goodwill A/c	6,000	By Gokul's Capital A/c	1,000
    		By Bakul's Capital A/c	2,000
    		By Gokul's Capital A/c	11,000
    		By Balance c/d	10,000
    	26,000		26,000

    Notes to the Solution:-

    1. New Profit Sharing Ratio:
       Nakul's share of profit = 14$\frac{1}{4}$, Remaining Share = 1-14=34$\frac{1}{4}=\frac{3}{4}$
       Bakul's new share = 23$\frac{2}{3}$ of 34$\frac{3}{4}$ = 24$\frac{2}{4}$
       Gokul's new share = 13$\frac{1}{3}$ of 34$\frac{3}{4}$ = 14$\frac{1}{4}$
       Nakul's share = 14$\frac{1}{4}$
       Nakul's Capital is ₹20,000 and his share of profit is 14$\frac{1}{4}$.
       Based on Nakul's capital the total Capital of the firm will be :
       20,000 ×41$\times \frac{4}{1}$ = ₹80,000
       Hence, Bakul's capital in new firm should be = 80,000 ×$\times$ 24$\frac{2}{4}$ = ₹40,000
       Gokul's capital in new firm should be = 80,000 ×$\times$ 14$\frac{1}{4}$ = ₹20,000
    2. Bakul's Capital in the new firm should be ₹40,000, whereas his existing capital shown by his Capital A/c is ₹42,000. Hence, his excess Capital amounting to ₹2,000 will be refunded to him.
    3. Gokul's Capital in the new firm should be ₹20,000, whereas his existing capital shown by his Captial A/c is ₹31,000. Hence, his excess Capital amounting to ₹11,000 will be refunded to him.CBSE Test Paper 01

       Goodwill - Nature and Valuation

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       1. As per Accounting Standard-26,

          1. both purchased and self-generated goodwill are accounted in the books of account

          2. purchased goodwill is accounted in the books of account

          3. None of these

          4. self-generated goodwill is accounted in the books of account

       2. Calculate the average profit of last four year's profits. The profits of the last four years were:

          2008	27000
          2009	39000
          2010	16000(loss)
          2011	40000

          1. ₹10000

          2. Rs. 22500

          3. ₹30000

          4. ₹40000

       3. The excess amount which the firm gets on selling its business over and above the net value is

          1. Surplus

          2. Goodwill

          3. Super profits.

          4. Reserve

       4. Goodwill is valued

          1. at the time of change in profit-sharing ratio

          2. at the time of retirement or death of a partner

          3. at the time of admission of a partner

          4. All of these

       5. Goodwill under Average Profit Method means

          1. None of these

          2. Normal profit ×$\times$ Number of year's purchase

          3. Super profit ×$\times$ Number of year's purchase

          4. Average profit ×$\times$ Number of year's purchase

       6. Fill in the blanks:

          Average Profit = ________.

       7. How does goodwill arise?

       8. How does the factor ‘quality of product' affect the goodwill of a firm?

       9. The profits and losses for last five years were
          1st year - Rs 3,000 (including an abnormal gain of 1,000)
          2nd year - Rs 7,000 (excluding Rs 2,000 as insurance premium)
          3rd year - Rs 2,000 (after charging an abnormal loss of Rs 1,000)
          4th year - Rs 3,000
          5th year - Rs 1,000 (Loss)
          Calculate the amount of Goodwill on the basis of 3 years purchase of last 5 years profits and losses.

       10. What is Revaluation Account? How it is differ from Profit & Loss Appropriation A/c?

       11. 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%. Find out the value of goodwill by

           1. Capitalisation of super profit method.
           2. Super profit method, if the goodwill is valued at 3 years’ purchase of super profit.

           The assets of the business were Rs 10,00,000 and its external liabilities Rs 1,80,000.

       12. Neeraj and Dheeraj are carrying on a business of repairing electronic items. There are no other technicians for repairing electronic items in the locality. As the electric supply has a lot of fluctuations the equipments get damaged. Therefore, both the partners themselves do the repairing work to the satisfaction of the customers. The firm donates 10% of its profits to a Charitable Hospital of the locality for the medical treatment of persons below poverty line. State the two factors affecting the goodwill of the firm discussed in the above para. Also identify any two values which the firm is trying to propagate.

       13. Cake and Muffin are partners sharing profits and losses in the ratio of 5: 4. On 1st April 2016, they admit Cookie as a new partner for 16$\frac{1}{6}$th share in the profits of the firm and the new ratio agreed upon is 3 : 2 : 1.
           Goodwill, at the time of Cookie's admission, is to be valued on the basis of capitalisation of the average profits of the last three years. Profits for the last three years were:

           Year ended 31st March 2014	₹39,000 (including an abnormal loss of ₹9,000)
           Year ended 31st March 2015	₹83,000 (including an abnormal loss of ₹8,000)
           Year ended 31st March 2016	₹72,000

           On 1st April 2016, the firm had assets of ₹8,00,000. Its creditors amounted ₹3,60,000. The firm had a Reserve Fund of ₹40,000 while Partners' Capital Account showed a balance of ₹4,00,000.
           The normal rate of return expected form this class of business is 13%.
           Cookie brings in ₹2,00,000 for her capital but is unable to bring in cash for her share of goodwill.
           You are required to:

           1. Calculate Cookie's share of Goodwill in the firm (Show your workings clearly).
           2. Pass Journal entries at the time of Cookie's admission.

       14. X and Y are partners in a firm sharing profits in the ratio of 5 : 3.On March 1, 2017 they admitted Z as a new Partner. The new profit sharing ratio will be 4 : 3 : 2. Z brought in ₹1,00,000 in cash as his share of capital but could not bring any amount for goodwill in cash. The firm's goodwill on Z's admission was valued at ₹1,80,000. X and Y decided that Z can bring his share of premium for goodwill later or it can be adjusted against his share of profits. At the time of Z's admission goodwill existed in the books of the firm at ₹2,40,000.
           You are required to pass necessary journal entries in the books of the firm on Z's admission.

       15. Bakul and Gokul were partners in a firm sharing profits and losses in the ratio of 2 : 1 with capitals of ₹40,000 and ₹30,000 respectively. They decided to admit Nakul into partnership on conditions that he would bring in ₹20,000 as his capital and ₹6,000 for his share of goodwill for 1/4th share of profits. Half of the amount of goodwill was withdrawn by the existing partners. The capital of the partners in the New firm was to be arranged in profit sharing ratio on the basis of Nakul's Capital and excess or deficit capital to be adjusted in cash. Give the necessary journal entries to record the transactions and show the capital accounts of the partners and the cash account.

       CBSE Test Paper 01
       Goodwill - Nature and Valuation

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       Solution

       1. (b) purchased goodwill is accounted in the books of account
          Explanation: purchased goodwill is accounted in the books of account
       2. (b) Rs. 22500
          Explanation: Calculation of average profit when loss is given:
          1. Calculation of total profits earned during 4 years: 27,000 + 39,000 – 16,000 + 40,000 = 90,000
          2. Average profit = 90,000/4 = 22,500
       3. (b) Goodwill
          Explanation: Goodwill
       4. (d) All of these
          Explanation: All of these
       5. (d) Average profit ×$\times$ Number of year's purchase
          Explanation: Average profit ×$\times$ Number of year's purchase

       6. TotalProfitNo.ofrelevantyears$\frac{TotalProfit}{No.ofrelevantyears}$

       7. Goodwill may arise due to factors like location, the efficiency of management, the trend of profits, the absence of competition, life span, relations, unique patent right. Goodwill arises when a company acquires another entire business. The amount of goodwill is the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase.

       8. If the firm enjoys good reputation for its product quality, there will be higher sales and the value of its goodwill will increase because this will not only retain existing customers but also bring new customers too thereby increasing sales as well as customer base.

       9. The amount of goodwill is the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase.

          Calculation of Goodwill
          Average maintainable profits
          Profits for 1st year (Rs 3,000 - Rs 1,000) = Rs 2,000
          Profits for 2nd year (Rs 7,000 - Rs 2,000) = Rs 5,000
          Profits for 3rd year (Rs 2,000 + Rs 1,000) = Rs 3,000
          Profits for 4th year = Rs 3.000
          Total profits= Rs 13,000
          Less : Loss for 5th year = Rs (1.000)
          Total Profit for last five years = Rs 12,000
          Average profits = Total profit /No. of years
          = Rs 12,000/5
          = Rs 2400
          Goodwill = Average profits ×$\times$No. of years’ purchase
          = Rs 2400 ×$\times$ 3
          = Rs 7200

       10. Revaluation account is a nominal account which is prepared to record the change of assets and reassessment of liabilities. The profit or loss calculated through this account is transferred to the partners’ capital/current account in their old profit sharing ratio while Profit and Loss Appropriation Account is prepared for the division of profit among the partners.

           Revaluation account is prepared whenever there is change in profit sharing ratio between the partners due to any reason e.g. Between existing partners, Due to Admission of a new partner, Due to retirement/death of a partner, amalgamation of two partnership firms etc. to record profit or loss on revaluation. Main concept being whatever happened before change in ratio; belongs to partners in the old ratio and after change in the new ratio

           Profit and Loss Appropriation Account, on the other hand, is prepared every year to distribute profit as per the terms of partnership deed.

       11. Working Notes:

           = 10,00,000 - 1,80,000 = Rs 8,20,000

           = 8,20,000 ×10100$\times \frac{10}{100}$= Rs 82,000

           = 1,00,000 - 82,000 = Rs 18,000

           1. As per Capitalisation of Super Profit Method
              Goodwill = Super Profit×100 Normal Rate of Return $\times \frac{100}{\text{ Normal Rate of Return }}$= 18,000×10010$\times \frac{100}{10}$= Rs 1,80,000
           2. As per  Super Profit Method
              Goodwill = Super Profit ×$\times$Number of Years' Purchase
                           = 18,000 ×$\times$3 = Rs 54,000
           • Capital Employed = Total Assets - External Liabilities
           • Normal Profit = Capital Employed× Normal Rate of Return 100$\times \frac{\text{ Normal Rate of Return }}{100}$
           • Super Profit = Average Profit - Normal Profit

       12. The factors affecting the goodwill of the firm are:

           1. Locational Factor:

           If the firm is centrally located or located in a very prominent place, it can attract, more customers resulting in an increase in turnover. Therefore, locational factor should always be considered while ascertaining the value of goodwill.

           2. Nature of Business:

           This is another factor which also influences the value of goodwill which includes:

           (i) The nature of goods;

           (ii) Risk involved;

           (iii) Monopolistic nature of business;

           (iv) Benefits of patents and Trademarks; and

           (v) Easy access of raw materials, etc.

           The values which the firm is trying to propagate are:

           1. Sensitivity towards people belonging to lower-income group.
           2. Working towards customer satisfaction.
       13. 1. Calculation of Cookie's Share of Goodwill in the firm:
              Calculation of Average Normal Profit:

              Year ended	Profit	₹
              31st March 2014	₹39,000 + ₹9,000	48,000
              31st March 2015	₹83,000 + ₹8,000	75,000
              31st March 2016		72,000
              		1,95,000

              Average Normal Profit = ₹1,95,0003$\frac{₹1,95,000}{3}$ = ₹65,000
              Capitalised Value of Average Profits =  Average Normal Profit  Normal Rate of Return ×100$\frac{\text{ Average Normal Profit }}{\text{ Normal Rate of Return }}\times 100$
              = Rs.65,00013×100=Rs.5,00,000$\frac{Rs.65,000}{13}\times 100=Rs.5,00,000$
              Capital Employed (Net Assets) = Total Assets - Outside Liabilities 
              = ₹8,00,000 - ₹3,60,000 = ₹4,40,000
              Goodwill = Capitalised Value of Average Profits - Net Assets
              = ₹5,00,000 - ₹4,40,000 = ₹60,000
              Cookie's Share of Goodwill =60,000×16=₹10,000$=60,000\times \frac{1}{6}=₹10,000$

           2. Date	Particulars		L.F	Dr.	Cr. (₹)
              2016 April 1	Bank A/c	Dr.		2,00,000
              	To Cookie's Capital A/c				2,00,000
              	(Amount of capital brought in cash)
              	Cookie's Current A/c	Dr.		10,000
              	To Cake's Capital A/c				3,333
              	To Muffin's Capital A/c				6,667
              	(Cookie's share of goodwill credited to sacrificing partners in their sacrificing ratio of 1 : 2)

              Calculation of Sacrificing Ratio:
              Cake's sacrifice = 59−36=10−918=118$\frac{5}{9}-\frac{3}{6}=\frac{10-9}{18}=\frac{1}{18}$
              Muffin's sacrifice = 49−26=8−618=218$\frac{4}{9}-\frac{2}{6}=\frac{8-6}{18}=\frac{2}{18}$
              Sacrificing Ratio of Cake and Muffin = 118:218$\frac{1}{18}:\frac{2}{18}$ or 1 : 2

       14. Date	Particulars		L.F.	Dr.(₹)	Cr. (₹)
           2017
           March 1	X's Capital A/c	Dr.		1,50,000
           	Y's Capital A/c	Dr.		90,000
           	To Goodwill A/c				2,40,000
           	(Goodwill already existing in the books, now written of in old ratio i.e. 5 : 3)
           March 1	Bank A/c	Dr.		1,00,000
           	To Y's Capital A/c				1,00,000
           	(Amount brought in by Z as his capital)
           March 1	Z's Current A/c(29$\frac{2}{9}$ of 1,80,000)	Dr.		40,000
           	To X's Capital A/c				32,500
           	To Y's Capital A/c				7,500
           	(Es share of goodwill credited to X and Yin their sacrificing ratio 13 :3.)

           Working Note: Calculation of Sacrificing Ratio:
           Old Ratio - New Ratio
           X's Sacrifice 58−49=45−3272=1372$\frac{5}{8}-\frac{4}{9}=\frac{45-32}{72}=\frac{13}{72}$
           Y's Sacrifice= 38−39=27−2472=372$\frac{3}{8}-\frac{3}{9}=\frac{27-24}{72}=\frac{3}{72}$
           Thus Sacrificing ratio between X and Y = 13 : 3.

       15. JOURNAL

           Date	Particulars		L.F	Dr.(₹)	Cr.(₹)
           	Bank A/c	Dr.		26,000
           	To Nakul's Capital A/c				20,000
           	To Premium for Goodwill A/c				6,000
           	(Capital and premium for goodwill brought in by Nakul)
           	Premium for Goodwill A/c	Dr.		6,.000
           	To Bakul's Capital A/c				4,000
           	To Gokul's Capital A/c				2,000
           	(Premium for goodwill credited to old partner's capital accounts)
           	Bakul's Capital A/c	Dr.		2,000
           	Gokul's Capital A/c	Dr.		1,000
           	To Bank A/c				3,000
           	(Half of the premium for goodwill withdrawn by Bakul and Gokul)
           	Bakul's Capital A/c(2)	Dr.		2,000
           	Gokul's Capital A/c(2)	Dr.		11,000
           	To Bank A/c				13,000
           	(Excess capital withdrawn by Bakul and Gokul)

           Dr.	CAPITAL ACCOUNTS						Cr.
           Particulars	Bakul	Gokul	Nakul	Particulars	Bakul	Gokul	Nakul
           	₹	₹	₹		₹	₹	₹
           To Bank A/c	2,000	1,000		By Balance b/d	40,000	30,000
           To Balance c/d	42,000	31,000	20,000	By Bank A/c	-	-	20,000
           				By Premium for Goodwill A/c	4,000	2,000	-
           	44,000	32,000	20,000		44,000	32,000	20,000
           To Bank A/c	2,000	11,000	-	By Balance b/d	42,000	31,000	20,000
           To Balance c/d	40,000	20,000	30,000
           	42,000	31,000	20,000		42,000	31,000	20,000

           Dr.	Bank Account		Cr.
           Particulars	₹	Particulars	₹
           To Nakul's capital A/c	20,000	By Bakul's Capital A/c	2,000
           To Premium for Goodwill A/c	6,000	By Gokul's Capital A/c	1,000
           		By Bakul's Capital A/c	2,000
           		By Gokul's Capital A/c	11,000
           		By Balance c/d	10,000
           	26,000		26,000

           Notes to the Solution:-

           1. New Profit Sharing Ratio:
              Nakul's share of profit = 14$\frac{1}{4}$, Remaining Share = 1-14=34$\frac{1}{4}=\frac{3}{4}$
              Bakul's new share = 23$\frac{2}{3}$ of 34$\frac{3}{4}$ = 24$\frac{2}{4}$
              Gokul's new share = 13$\frac{1}{3}$ of 34$\frac{3}{4}$ = 14$\frac{1}{4}$
              Nakul's share = 14$\frac{1}{4}$
              Nakul's Capital is ₹20,000 and his share of profit is 14$\frac{1}{4}$.
              Based on Nakul's capital the total Capital of the firm will be :
              20,000 ×41$\times \frac{4}{1}$ = ₹80,000
              Hence, Bakul's capital in new firm should be = 80,000 ×$\times$ 24$\frac{2}{4}$ = ₹40,000
              Gokul's capital in new firm should be = 80,000 ×$\times$ 14$\frac{1}{4}$ = ₹20,000
           2. Bakul's Capital in the new firm should be ₹40,000, whereas his existing capital shown by his Capital A/c is ₹42,000. Hence, his excess Capital amounting to ₹2,000 will be refunded to him.
           3. Gokul's Capital in the new firm should be ₹20,000, whereas his existing capital shown by his Captial A/c is ₹31,000. Hence, his excess Capital amounting to ₹11,000 will be refunded to him.