Accountancy Tes...

Good will of Indian bears, a partnership firm, is ₹ 10,00,000 calculated on 2.5 years’ purchase of average profits of last 3 years.

What is value of X?

Good will can be _______

Competency of management does not affect good will.

When is there no need to value the good will?

Good will calculated by one method is equal to goodwill calculated by any other method.

As per AS-26, self-generated good will is recorded in the books.

Non-business incomes are added while calculating average profits.

Read the following case study and answer question on the basis of the same.

Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows ‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transaction

Assets

₹ 8,000 Creditors ₹ 1,000

Normal rate of return 10%

Good will of the firm ₹ 1,000

Machinery replacement fund is transferred to patners’ capital account at the time of change in profit sharing ratio.

A and B are partners in a firm sharing profit and losses 2 : 3 with effect from 1st April, 2021, they decided to share profits and loss equally. What will be B’s gain/sacrifice?