DEPARTMENT OF TECHNICAL EDUCATON

GOVERNMENT OF ANDHRA PRADESH

Name of the staff :N. Sai Ram

Designation :Head of CCP
Institute :Govt polytechnic for women Kakinada
Semester :IV
Subject :Accountancy - III
Subject Code :CCP-402
Major topic :Partnership
Sub topic :Goodwill
Duration :50 Minutes
Teaching Aids :PPT, Animation

CCP402.36 1
PARTNERSHIP

Objectives:

On completion of this topic you would be

able to understand the..

 Methods of Calculation of Goodwill

CCP402.36 2
Recap
In the previous class we have already learned:

 Meaning of goodwill
 Definition of Good will
 Need for Valuation of Goodwill
 Method of calculating goodwill
 Super profit Methods
 Average Profits Method

CCP402.36 3
Capitalisation Method

 Investment of a Firm = 2,00,000

 Normal Rate of Return = 10%
 Normal Profit = 20,000
 But Actual Profit = 30,000

CCP402.36 4
 Capitalization Method

 Normal capital to be invested to earn a profit of

30,000 30,000 x 100

10

 3,00,000

 Goodwill = normal capital – actual capital

CCP402.36 5
 Solution
 Goodwill = normal capital – actual capital
= 3,00,000 – 2,00,000
= 1,00,000

 Here the emphasis is on capital

 Hence it is known as ‘capitalisation method’

CCP402.36 6
Premium Method
 Goodwill to be decided based on the premium paid
by the new partner
 Premium paid by new partner is to be raised
proportionately
 If new partner pays 20000/- as premium for a 20%
share
 Goodwill of the firm will be
 20,000 x 100 = 1,00,000
20

CCP402.36 7
Hidden Goodwill Method

 Raise the capitals of existing partners in

proportion to the capital of new partner
 Deduct the capitals of existing partners from the
above total to obtain goodwill

CCP402.36 8
Illustration

 A and B with capitals of 1,00,000 and 2,00,000

admit ‘C’ giving him 20% share in profits and bring
1,00,000 as his capital. Find goodwill

CCP402.36 9
 Solution

 FOR 20% SHARE C’s CAPITAL = 1,00,000

 For 80% share of A & B
 Their capital should be 1,00,000 x 4
= 4,00,000
 Actual capitals of A & B = 3,00,000
 Goodwill= proportionate capital – actual capital
 Hence goodwill = 4,00,000 – 3,00,000
= 1,00,000

CCP402.36 10
Important Questions

 Define Partnership
 What are the features of Partnership
 What is Partnership Deed
 What are the contents of Partnership Deed

CCP402.36 11
Important Questions

 Explain the provisions applicable in the absence

of partnership agreement
 What is goodwill
 State the various methods of valuing goodwill
 Explain average profits method of valuing
goodwill

CCP402.36 12
Quiz

1. Minimum no. Of partners in a

partnership should be

A) 3
B) 2
C) 1
D) 20

CCP402.36 13
Quiz

1. Maximum no. of partners in any business

A) 10
B) 50
C) 20
D) 2

CCP402.36 14
Quiz

3. Maximum no. Of partners in a banking

business

A) 2
B) 20
C) 50
D) 10

CCP402.36 15
Quiz

4. Partnership agreement should be

A) Oral
B) Written
C) Oral or written
d) None

CCP402.36 16
Quiz

5. In the absence of agreement

A) Interest on capital is allowed

B) Interest on drawing is charged
C) Profits to be shared equally
D) Salary is allowed to partner

CCP402.36 17
Quiz

6. Which of the following does not appear

in profit & loss appropriation a/c

A) Salary
B) Commission
C) Interest on capital
D) Goodwill

CCP402.36 18
Quiz
1. When fixed amount is withdrawn on the first
of every month, interest on drawing is
calculated on the total amount for an
average period of

A) 5 ½ months
B) 6 months
C) 6 ½ months
d) 5 months

CCP402.36 19
Quiz

1. Profit and loss appropriation a/c is

A) Personal a/c
B) Real a/c
C) Nominal a/c
D) Normal a/c

CCP402.36 20
Quiz

1. Goodwill is

A) Tangible asset
B) Ficticious asset
C) Intangible asset
D) Current asset

CCP402.36 21
Summary

In this session we have learned about:

 Methods of Calculation of Goodwill

 Capitalisation Method
 Premium Method
 Hidden goodwill Method

CCP402.36 22