CBSE Std-12 Commerce Accountancy — Practice Paper

Goodwill is defined as:

Under the Average Profit Method, goodwill is calculated as:

When goodwill is brought in by a new partner in cash and credited to existing partners, the correct journal entry is:

Super Profit is calculated as:

The Realisation Account in partnership dissolution is prepared to:

When a loss is incurred on the sale of assets during dissolution, it is:

In the Capitalisation of Average Profit method, goodwill is calculated using the formula:

When a new partner is admitted without bringing goodwill in cash, the existing partners' capital accounts are:

The balance of the Realisation Account after all assets are sold and liabilities paid is transferred to:

Normal Profit in goodwill valuation is calculated as:

Define goodwill and state any two characteristics of goodwill in a partnership firm.

Calculate the goodwill using the Average Profit Method from the following: Profits for the last 3 years: Year 1: ₹30,000; Year 2: ₹36,000; Year 3: ₹42,000 Number of years purchase = 2.5

List any four items that must be settled during the dissolution of a partnership firm.

**Choice A:** A partnership earned profits of ₹80,000, ₹95,000, and ₹1,10,000 in the last three years respectively. The average capital employed is ₹5,00,000 and the normal rate of return is 10% per annum. Calculate goodwill using the Super Profit Method (assume 3 years purchase of super profit).

**Choice B:** Calculate goodwill using the Capitalisation of Average Profit Method from the following: Average Profit = ₹60,000 Normal Rate of Return = 12% per annum Capital Employed = ₹4,00,000

**Choice A:** A partnership firm of three partners A, B, and C has capitals of ₹1,00,000 each. The firm's goodwill is valued at ₹75,000. When D is admitted as a new partner bringing ₹80,000 as capital without any contribution towards goodwill, the goodwill is credited to the existing partners in their profit-sharing ratio (1:1:1). Pass the necessary journal entries to record the goodwill adjustment.

**Choice B:** Three partners P, Q, and R have capitals of ₹2,00,000, ₹1,50,000, and ₹1,50,000 respectively. The firm's goodwill is ₹1,20,000. When S is admitted for 1/5 share with a capital of ₹1,00,000, goodwill is credited to existing partners. Pass journal entries assuming profit-sharing ratio of existing partners is 2:2:1.

**Choice A:** On 31st March 2024, X and Y are partners with capitals of ₹1,00,000 each. Assets are revalued: Building (from ₹1,50,000 to ₹1,80,000), Stock (from ₹80,000 to ₹70,000), Debtors (from ₹50,000 to ₹45,000). Prepare a Revaluation Account to show the gain or loss on revaluation.

**Choice B:** Prepare a Revaluation Account on the date of partnership dissolution when assets are revalued as follows: Land and Building (from ₹3,00,000 to ₹3,50,000), Machinery (from ₹2,00,000 to ₹1,80,000), Stock (from ₹1,00,000 to ₹90,000). The firm has 3 partners.

**Choice A:** During dissolution of a partnership, after realizing all assets and paying all liabilities, there is a debit balance of ₹30,000 in the Realisation Account. The capitals of partners M, N, and O are in the ratio 3:2:1. Show how this loss will be borne by the partners and pass the necessary journal entries to settle the loss.

**Choice B:** In the dissolution of a firm, the Realisation Account shows a credit balance of ₹24,000 after all assets are sold and liabilities paid. The partners' capital ratio is 4:2:2. Show the adjustment in the capital accounts and pass the necessary journal entries for settlement of the profit.

**Choice A:** The books of a partnership firm on 30th June 2024 show annual profits (last 4 years) as: ₹1,80,000; ₹2,00,000; ₹2,20,000; ₹2,40,000. Capital employed is ₹10,00,000 and normal rate of return is 10%. Calculate goodwill using: (i) Average Profit Method (4 years purchase) (ii) Super Profit Method (4 years purchase) (iii) Capitalisation of Super Profit Method

**Choice B:** A partnership firm's goodwill is valued at ₹1,50,000. Partners A, B, and C share profits in the ratio 3:2:1 with capitals of ₹1,50,000, ₹1,00,000, and ₹75,000 respectively. When D is admitted for 1/6 share bringing ₹1,20,000 as capital: (i) Goodwill is not brought in cash; existing partners take credit for their share of goodwill (ii) Assets are revalued showing a gain of ₹60,000 Pass all journal entries and show the new capital accounts of all partners.

**Choice A:** Complete the dissolution of a partnership with the following Balance Sheet of 30th June 2024: Partners: A, B, C with capitals ₹1,20,000 each Assets: Land ₹1,00,000; Machinery ₹80,000; Stock ₹70,000; Debtors ₹50,000; Cash ₹40,000 Liabilities: Creditors ₹1,00,000; Bank Loan ₹50,000 Assets realized at: Land 95%, Machinery 80%, Stock 90%, Debtors 85% of book value Dissolution expenses ₹8,000 paid in cash Prepare: (i) Realisation Account, (ii) Partners' Capital Accounts, (iii) Cash Account

**Choice B:** Partnership Balance Sheet on 31st March 2024: Partners: X, Y, Z with capitals ₹2,00,000, ₹1,50,000, ₹1,00,000 respectively Assets: Goodwill ₹50,000; Building ₹3,00,000; Machinery ₹1,50,000; Stock ₹80,000; Debtors ₹90,000; Cash ₹30,000 Liabilities: Creditors ₹2,30,000 On dissolution: Goodwill is written off; other assets realized at: Building 110%, Machinery 70%, Stock 95%, Debtors 90% Dissolution costs ₹5,000 Prepare: (i) Realisation Account, (ii) Partners' Capital Accounts, (iii) Bank Account

**Case Study: Goodwill in Partnership Admission** Prosperous Traders is a successful partnership firm operating in the textile business for the past 10 years. The current partners, Raj and Priya, who share profits equally, are considering admitting their friend Kumar as a new partner. Before finalizing the partnership deed, they need to determine the firm's goodwill value. Financial data: - Profits for the last 5 years: ₹60,000; ₹72,000; ₹84,000; ₹96,000; ₹1,08,000 - Capital employed in the business: ₹6,00,000 - Normal rate of return in this industry: 10% per annum - Kumar is being admitted for 1/4 share and will bring ₹2,50,000 as capital **Sub-questions:** (i) Calculate the average profit for the 5-year period. (1 mark) (ii) Calculate the goodwill using the Capitalisation of Average Profit Method. (1.5 marks) (iii) What will be the goodwill amount that Kumar should contribute if the partners decide to charge proportionate goodwill? Show calculation. (1 mark) (iv) If Kumar does not pay goodwill in cash but goodwill is credited to the existing partners, who bears the burden? Explain briefly. (0.5 marks)

**Case Study: Partnership Dissolution Process** GlobeTech Solutions is a 3-partner IT services firm being dissolved due to disagreement among partners. The firm's Balance Sheet on 30th June 2024 shows: Assets: - Goodwill: ₹30,000 - Office Building: ₹4,00,000 - Computers & Equipment: ₹1,50,000 - Software Licenses: ₹50,000 - Debtors: ₹80,000 - Bank Balance: ₹40,000 Liabilities: - Creditors: ₹2,00,000 - Bank Overdraft: ₹50,000 Partners' Capitals: - Arun: ₹1,50,000 - Bina: ₹1,50,000 - Chetan: ₹1,00,000 During dissolution: - Goodwill to be written off as not realizable - Building sold for ₹4,20,000 - Equipment realized at 60% of book value - Software licenses: 50% recovery - Debtors collected: 85% - Bank overdraft settled in full - Dissolution costs: ₹10,000 **Sub-questions:** (i) Calculate the total amount available for distribution to partners after settling all liabilities. Show the loss/gain on realization. (1.5 marks) (ii) Prepare the Realisation Account showing the overall gain or loss. (1.5 marks) (iii) In what ratio will the final settlement be made among the partners? Which capital account shows a debit balance? (1 mark)