CUET UG Accountancy Booster Test 2 Treatment of Goodwill -

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CUET UG Accountancy Booster Test 1 Treatment of Goodwill

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Accountancy Booster Test 1 Treatment of Goodwill

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QUESTION 1 OF 20

📄 Passage

When goodwill already exists in the books of the firm, it is written off at the time of admission of a partner. For example, if goodwill appears in books at Rs. 10,000, an additional journal entry is passed to write off this existing amount by debiting the old partners' capital accounts in their old profit sharing ratio. Thereafter, new value of goodwill will be given effect by crediting sacrificing partners.

According to the passage, what is done with goodwill already existing in the books at the time of admission?

Answer Review

📄 Passage

According to the passage, what is done with goodwill already existing in the books at the time of admission?

A It is doubled for future valuation

B It is written off completely

C It is transferred to the new partner only

D It is sold for cash immediately

💡 Short Explanation

Existing goodwill removed. Old value eliminated first. Fresh adjustment then recorded.

✅ Correct Answer Explanation

The passage states that existing goodwill appearing in books is written off at the time of admission. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → No doubling required.
Option C → Not transferred solely.
Option D → No immediate sale.

🎯 Strategy

Used

Passage Interpretation

Application:

�� Identify treatment of existing goodwill.

Final Logic:

�� Old goodwill must be removed.

🧠 Memory Trick

"Old Goodwill Must Go"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Writing Off Goodwill – Page reference may vary by edition.

📄 Passage

According to the passage, if existing goodwill is Rs. 10,000 and old partners X and Y share profits equally, what exact amount is debited to X's capital account to write it off?

A Rs. 10,000

B Rs. 20,000

C Rs. 5,000

D Rs. 2,500

💡 Short Explanation

Goodwill shared equally. Total amount divided equally. X bears half.

✅ Correct Answer Explanation

Goodwill: 10000 ÷ 2 = 5000 X's Capital Account is debited by Rs. 5,000. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Entire goodwill amount.
Option B → Exceeds total.
Option D → Quarter share only.

🎯 Strategy

Used

Ratio Distribution

Application:

�� Divide equally between partners.

Final Logic:

�� Equal partners bear equal debit.

🧠 Memory Trick

"Equal Ratio = Equal Debit"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Old Ratio Adjustment – Page reference may vary by edition.

3 Premium for goodwill is logically justified to exist only when the newly reconstituted firm earns:

A Losses

B Normal profits

C Capital profits

D Super profits

💡 Short Explanation

Goodwill linked with excess profit. Super profits create advantage. Normal profits insufficient.

✅ Correct Answer Explanation

Goodwill exists because the firm earns super profits over normal returns. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Losses destroy goodwill.
Option B → No excess earning.
Option C → Capital profits unrelated.

🎯 Strategy

Used

Conceptual Understanding

Application:

�� Link goodwill with earning capacity.

Final Logic:

�� Super profits justify premium.

🧠 Memory Trick

"No Super Profit, No Goodwill"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Meaning of Premium – Page reference may vary by edition.

4 Consider the following statements:
I. The new partner compensates the old partners via the premium.
II. The compensation is explicitly for the loss of their share in super profits.

A Both I and II are correct

B Only I is correct

C Only II is correct

D Neither statement is correct

💡 Short Explanation

Old partners sacrifice profits. Premium compensates sacrifice. Both statements valid.

✅ Correct Answer Explanation

The incoming partner compensates old partners for loss of future super profits through goodwill premium. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Statement II true.
Option C → Statement I also true.
Option D → Both statements correct.

🎯 Strategy

Used

Statement Verification

Application:

�� Identify purpose of premium.

Final Logic:

�� Compensation protects sacrificing partners.

🧠 Memory Trick

"Premium Rewards Sacrifice"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Compensation to Partners – Page reference may vary by edition.

5 When the new partner brings cash specifically for goodwill, the correct formulaic entry is Bank A/c Dr., To ________ A/c.

A Revaluation

B New Partner's Capital

C Old Partners' Capital

D Premium for Goodwill

💡 Short Explanation

Cash received by bank. Goodwill premium recognized separately. Correct account credited.

✅ Correct Answer Explanation

Journal Entry: Bank A/c Dr. To Premium for Goodwill A/c Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Revaluation unrelated.
Option B → Capital अलग treatment.
Option C → Indirect credit only later.

🎯 Strategy

Used

Journal Entry Recall

Application:

�� Identify correct credit account.

Final Logic:

�� Premium initially credited separately.

🧠 Memory Trick

"Cash for Goodwill → Premium A/c"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Entry for Goodwill – Page reference may vary by edition.

6 Arrange the chronological sequence for distributing the premium brought in cash:
1. Ascertain the new profit sharing ratio.
2. Ascertain the sacrificing ratio of old partners.
3. Receive cash from the new partner.
4. Credit the sacrificing partners' capital accounts.

A 1, 3, 2, 4

B 3, 1, 4, 2

C 1, 2, 3, 4

D 2, 1, 3, 4

💡 Short Explanation

Determine new ratio first. Calculate sacrifice next. Receive and distribute cash.

✅ Correct Answer Explanation

Correct sequence: New ratio determined Sacrificing ratio calculated Cash received Sacrificing partners credited Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Sacrificing ratio delayed.
Option B → Cash before calculations.
Option D → New ratio should precede sacrifice.

🎯 Strategy

Used

Sequential Logic

Application:

�� Arrange goodwill adjustment process.

Final Logic:

�� Calculations precede accounting entry.

🧠 Memory Trick

"Ratio → Sacrifice → Cash → Credit"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Distribution to Partners – Page reference may vary by edition.

7 Assertion (A): The sacrificing ratio must always be calculated when a new partner is admitted.
Reason (R): The goodwill premium is strictly allocated based on the ratio in which old partners forgo their shares.

A Both A and R are true, but R is not the correct explanation

B Both A and R are true and R is the correct explanation

C A is false, R is true

D Both A and R are false

💡 Short Explanation

Goodwill depends on sacrifice. Sacrificing ratio essential. Reason explains assertion.

✅ Correct Answer Explanation

The premium for goodwill is distributed in sacrificing ratio, making its calculation necessary. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Reason directly explains.
Option C → Assertion true.
Option D → Both statements correct.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

�� Connect sacrifice with goodwill allocation.

Final Logic:

�� Premium follows sacrificing ratio.

🧠 Memory Trick

"Goodwill Follows Sacrifice"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Allocation Basis – Page reference may vary by edition.

8 Match the Following items with their appropriate crediting rules:

List 1	List 2
1. Revaluation Profit	a. Credited from Revaluation A/c to Partners
2. Premium for Goodwill	b. Credited to Old Partners in Sacrificing Ratio
3. Accumulated Loss	c. Debited to Old Partners
4. General Reserve	d. Credited to Old Partners in Old Ratio

A 1-d, 2-c, 3-a, 4-b

B 1-c, 2-d, 3-b, 4-a

C 1-b, 2-a, 3-d, 4-c

D 1-a, 2-b, 3-c, 4-d

💡 Short Explanation

Revaluation profit transferred to partners. Premium follows sacrificing ratio. Losses debited to old partners.

✅ Correct Answer Explanation

Correct matching: Revaluation Profit → Credited from Revaluation A/c Premium → Sacrificing ratio Accumulated Loss → Debited General Reserve → Old ratio Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Premium wrongly matched.
Option C → Reserve mismatch.
Option D → Entire sequence incorrect.

🎯 Strategy

Used

Matching Logic

Application:

�� Connect items with accounting treatment.

Final Logic:

�� Only Option A fully correct.

🧠 Memory Trick

"Premium → Sacrifice Ratio"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Capital Account Credit – Page reference may vary by edition.

9 If the total Premium for Goodwill is Rs. 4,000, distributed to Sunil (Rs. 2,500) and Dalip (Rs. 1,500). Upon full withdrawal of this amount by them, the Bank A/c is credited by:

A Rs. 2,500

B Rs. 1,500

C Rs. 4,000

D Rs. 2,000

💡 Short Explanation

Entire goodwill withdrawn. Bank decreases fully. Total withdrawal credited.

✅ Correct Answer Explanation

Total withdrawal: [2500 + 1500 = 4000] Bank A/c is credited by Rs. 4,000. 2500+1500=4000 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Sunil only.
Option B → Dalip only.
Option D → Half amount.

🎯 Strategy

Used

Total Withdrawal Calculation

Application:

�� Add withdrawals together.

Final Logic:

�� Entire amount leaves bank.

🧠 Memory Trick

"Full Withdrawal = Full Credit"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Full Withdrawal – Page reference may vary by edition.

10 If partners decide to withdraw 50% of the goodwill credited to them, how does this accounting event affect the business's overall cash position?

A Increases it

B No effect

C Doubles it

D Decreases it by half the premium amount

💡 Short Explanation

Cash withdrawn from business. Half premium removed. Bank balance decreases.

✅ Correct Answer Explanation

Withdrawal reduces business cash by the withdrawn portion of goodwill. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Cash does not increase.
Option B → Withdrawal affects bank.
Option C → No doubling.

🎯 Strategy

Used

Cash Flow Understanding

Application:

�� Analyze effect of withdrawal.

Final Logic:

�� Withdrawal lowers cash position.

🧠 Memory Trick

"Withdrawal Reduces Cash"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Partial Withdrawal – Page reference may vary by edition.

11 If alternative entries are passed by first crediting the new partner's capital with the goodwill brought, what is the mandatory next step to complete the adjustment?

A Debit Revaluation A/c

B Debit New Partner's Capital and Credit Sacrificing Partners

C Credit Bank A/c

D Debit Old Partners Capital

💡 Short Explanation

Goodwill transferred ultimately. Sacrificing partners compensated. New partner debited.

✅ Correct Answer Explanation

Alternative method requires adjustment from the new partner's capital to sacrificing partners. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Revaluation unrelated.
Option C → Bank already adjusted.
Option D → Old partners credited, not debited.

🎯 Strategy

Used

Journal Entry Logic

Application:

�� Complete goodwill adjustment.

Final Logic:

�� Sacrificing partners receive compensation.

🧠 Memory Trick

"Debit New, Credit Old"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Capital Adjustment Method – Page reference may vary by edition.

12 Consider the following statements on direct distribution:
I. If goodwill is paid privately, no entry is passed in the firm's books.
II. It is still practically distributed in the sacrificing ratio outside the firm.

A Both I and II are correct

B Only I is correct

C Only II is correct

D Neither is correct

💡 Short Explanation

Private settlement outside books. Sacrifice basis still followed. Both statements correct.

✅ Correct Answer Explanation

When goodwill is settled privately, no journal entry is recorded, though compensation follows sacrificing ratio. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Statement II true.
Option C → Statement I also true.
Option D → Both valid.

🎯 Strategy

Used

Statement Verification

Application:

�� Evaluate direct distribution treatment.

Final Logic:

�� Private payment bypasses books.

🧠 Memory Trick

"Private Payment = No Entry"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Direct Distribution – Page reference may vary by edition.

13 When the new partner does not bring goodwill in cash, the formulaic journal entry is _____ A/c Dr. to Sacrificing Partners' Capital A/c.

A Revaluation

B Incoming Partner's Current

C Goodwill

D Bank

💡 Short Explanation

Goodwill not paid in cash. New partner personally liable. Current account debited.

✅ Correct Answer Explanation

Journal Entry: Incoming Partner's Current A/c Dr. To Sacrificing Partners' Capital A/c Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Revaluation unrelated.
Option C → Goodwill account avoided.
Option D → No cash brought.

🎯 Strategy

Used

Journal Entry Recall

Application:

�� Identify correct debit account.

Final Logic:

�� Current account records deficiency.

🧠 Memory Trick

"No Cash → Debit Current A/c"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: No Cash Brought – Page reference may vary by edition.

14 The goodwill of the firm is valued at Rs. 30,000. The new partner's share is 1/5. He brings no cash for goodwill. How much total amount is credited to the old partners' accounts?

A Rs. 6,000

B Rs. 30,000

C Rs. 15,000

D Rs. 10,000

💡 Short Explanation

Goodwill proportionately calculated. Incoming share applied. Old partners compensated.

✅ Correct Answer Explanation

Goodwill Share: 30000 × 1/5 = 6000 Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Total goodwill only.
Option C → Half goodwill assumption.
Option D → Incorrect fraction.

🎯 Strategy

Used

Proportion Method

Application:

�� Multiply total goodwill by new share.

Final Logic:

�� Compensation equals Rs. 6,000.

🧠 Memory Trick

"Goodwill × Share Fraction"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Credit Old Partners – Page reference may vary by edition.

15 When a new partner brings only a partial amount of his share of goodwill in cash, the unbought (deficient) portion is strictly debited to:

A Goodwill A/c

B Old Partners' Capital A/c

C New Partner's Current A/c

D Profit and Loss A/c

💡 Short Explanation

Deficiency remains payable. Current account records balance. Old partners compensated.

✅ Correct Answer Explanation

The unpaid portion of goodwill is debited to the new partner's current account. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Goodwill account avoided.
Option B → Old partners credited instead.
Option D → P&L unrelated.

🎯 Strategy

Used

Accounting Adjustment Logic

Application:

�� Record unpaid goodwill.

Final Logic:

�� Current account tracks deficiency.

🧠 Memory Trick

"Deficiency → Current Account"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Cash Plus Adjustment – Page reference may vary by edition.

16 Assertion (A): The new partner's current account is utilized to debit the balance when goodwill is not fully brought in cash.
Reason (R): AS-26 requires internally generated goodwill to be recorded as a permanent asset on the balance sheet.

A Both A and R are true

B A is false, R is true

C Both A and R are false

D A is true, R is false

💡 Short Explanation

Current account used correctly. AS-26 does not allow recognition. Reason incorrect.

✅ Correct Answer Explanation

Internally generated goodwill is generally not recorded as a permanent asset under AS-26. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Reason false.
Option B → Assertion true.
Option C → Assertion not false.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

�� Apply AS-26 principle.

Final Logic:

�� Current account handles deficiency.

🧠 Memory Trick

"AS-26 Restricts Internal Goodwill"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Balance Treatment – Page reference may vary by edition.

17 Match the following scenarios regarding goodwill treatment:

List 1	List 2
1. Goodwill brought fully in cash	c. Credit Premium for Goodwill A/c
2. Goodwill not brought in cash at all	b. Debit the New Partner's Current A/c
3. Existing goodwill in balance sheet	d. Debit Old Partners' Capital A/c in Old Ratio
4. Goodwill paid privately	a. No entry is passed in the books

A 1-c, 2-b, 3-d, 4-a

B 1-b, 2-c, 3-a, 4-d

C 1-a, 2-d, 3-b, 4-c

D 1-d, 2-a, 3-c, 4-b

💡 Short Explanation

Cash goodwill credited separately. No cash uses current account. Existing goodwill written off.

✅ Correct Answer Explanation

Correct matching: Full cash → Premium A/c No cash → Current A/c Existing goodwill → Debit old partners Private payment → No entry Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Existing goodwill mismatch.
Option C → Full cash incorrectly linked.
Option D → Multiple incorrect matches.

🎯 Strategy

Used

Matching Logic

Application:

�� Relate scenarios with treatment.

Final Logic:

�� Only Option A fully correct.

🧠 Memory Trick

"Private Payment = No Entry"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Recording Deficiency – Page reference may vary by edition.

18 AS-26 stipulates that internally generated goodwill should not be recognized as an asset. Thus, it should be written off in the same financial year or alternatively adjusted through:

A Cash account

B Revaluation account

C Bank loan

D Partners' capital/current accounts

💡 Short Explanation

Internal goodwill not retained. Adjustment made among partners. Capital/current accounts used.

✅ Correct Answer Explanation

AS-26 recommends adjustment through partners' accounts rather than retaining goodwill as an asset. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Cash not mandatory.
Option B → Revaluation unrelated.
Option C → Loan unnecessary.

🎯 Strategy

Used

Accounting Standard Application

Application:

�� Apply AS-26 requirement.

Final Logic:

�� Partners' accounts handle adjustment.

🧠 Memory Trick

"Adjust Through Partners' Accounts"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Adjustment Entries – Page reference may vary by edition.

19 Arrange the sequence for recording a scenario where cash is brought for capital but NOT for goodwill:
1. Credit old partners' capital accounts in the sacrificing ratio.
2. Debit Bank for the capital brought in.
3. Debit the new partner's current account for his share of goodwill.
4. Credit the new partner's capital account.

A 1, 2, 3, 4

B 2, 1, 4, 3

C 2, 4, 3, 1

D 3, 1, 2, 4

💡 Short Explanation

Capital received first. Capital credited next. Goodwill deficiency adjusted later.

✅ Correct Answer Explanation

Correct order: Debit Bank Credit new partner's capital Debit current account Credit old partners Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Capital entry delayed.
Option B → Old partners credited too early.
Option D → Current account before cash entry.

🎯 Strategy

Used

Journal Sequence Logic

Application:

�� Arrange accounting entries chronologically.

Final Logic:

�� Capital entry precedes goodwill adjustment.

🧠 Memory Trick

"Bank → Capital → Current → Old Partners"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Journal Entries – Page reference may vary by edition.

20 A and B share profits in 2:1. C is admitted for a 1/4 share. The total capital of the firm is agreed at Rs. 1,20,000. C brings Rs. 30,000. A's new share is 2/4. What must be A's adjusted capital balance?

A Rs. 30,000

B Rs. 60,000

C Rs. 40,000

D Rs. 80,000

💡 Short Explanation

Total capital distributed by ratio. A receives half share. Adjusted capital calculated proportionately.

✅ Correct Answer Explanation

A's New Share: 2/4 Adjusted Capital: 120000 × 2/4 = 60000 Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → C's capital only.
Option C → Incorrect proportion.
Option D → Exceeds half capital.

🎯 Strategy

Used

Capital Adjustment Method

Application:

�� Multiply total capital by new share.

Final Logic:

�� A's adjusted capital equals Rs. 60,000.

🧠 Memory Trick

"Total Capital × New Share"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Capital Adjustments – Page reference may vary by edition.

CUET UG Accountancy Booster Test 1 Treatment of Goodwill

Test Complete!

Answer Review