CUET UG Accountancy Booster Test 2 Goodwill Treatment -

🚀

CUET UG Accountancy Booster Test 1 Goodwill Treatment

⏱️ 30 Minutes

❓ 20 Questions

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

CUET UG Accountancy Booster Test 1 Goodwill Treatment

1 / 20

QUESTION 1 OF 20

Which best represents the fundamental reason goodwill must be adjusted upon the death or retirement of a partner?

Answer Review

1 Which best represents the fundamental reason goodwill must be adjusted upon the death or retirement of a partner?

A Goodwill is a fictitious asset that must be removed immediately to satisfy tax laws.

B Goodwill represents past collective efforts yielding future benefits, entitling the departing partner to their earned share.

C Goodwill is a liability owed to external parties that must be settled before reconstitution.

D Goodwill must be transferred to the executor's loan account to prevent legal disputes.

💡 Short Explanation

Goodwill earned jointly. Future benefits expected. Retiring partner deserves share.

✅ Correct Answer Explanation

Goodwill arises from collective efforts of all partners and belongs proportionately to them. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Goodwill is not fictitious asset.
Option C → Goodwill is not liability.
Option D → No such compulsory transfer.

🎯 Strategy

Used

Conceptual Understanding

Application:

�� Identify meaning and purpose of goodwill adjustment.

Final Logic:

�� Goodwill belongs to all contributing partners.

🧠 Memory Trick

"Joint Efforts Create Goodwill"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Nature of Goodwill – Page reference may vary by edition.

2 If a partnership deed is silent, does a deceased partner's executor have the right to a share of the firm's goodwill?

A No, death immediately voids any claim to intangible assets.

B No, unless the surviving partners voluntarily agree to pay it.

C Yes, they are entitled to the deceased partner's share of goodwill as earned by joint efforts.

D Yes, but only if goodwill already appears on the balance sheet.

💡 Short Explanation

Goodwill earned collectively. Executor represents deceased partner. Share remains payable.

✅ Correct Answer Explanation

The deceased partner's estate is entitled to goodwill earned through joint business efforts. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Rights do not vanish automatically.
Option B → Legal entitlement exists.
Option D → Book appearance unnecessary.

🎯 Strategy

Used

Legal and Conceptual Understanding

Application:

�� Determine executor's rights.

Final Logic:

�� Goodwill belongs to deceased partner's estate.

🧠 Memory Trick

"Executor Gets Earned Share"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Right of Retiring/Deceased Partner – Page reference may vary by edition.

3 Assertion (A): The valuation of goodwill at retirement is primarily dictated by the specific terms agreed upon in the partnership deed or by mutual agreement.
Reason (R): The law provides a strict, unalterable formula for goodwill valuation that overrides any mutual agreements.

A Both A and R are true, and R is the correct explanation of A.

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

C A is false, but R is true.

D A is true, but R is false.

💡 Short Explanation

Goodwill depends on agreement. No compulsory legal formula. Reason statement incorrect.

✅ Correct Answer Explanation

Partners may decide goodwill value mutually or through partnership deed provisions. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

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

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

�� Compare agreement principle and legal rule.

Final Logic:

�� Mutual agreement governs valuation.

🧠 Memory Trick

"Agreement Decides Goodwill"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Valuation of Goodwill – Page reference may vary by edition.

4 Arrange the steps to find a retiring partner's goodwill compensation based on firm valuation:
(i) Ascertain the retiring partner's old profit-sharing ratio.
(ii) Calculate the total value of the firm's goodwill as per agreement.
(iii) Multiply the firm's total goodwill by the retiring partner's ratio.

A (ii), (i), (iii)

B (i), (iii), (ii)

C (iii), (ii), (i)

D (i), (ii), (iii)

💡 Short Explanation

Firm goodwill valued first. Retiring ratio identified next. Share calculated afterward.

✅ Correct Answer Explanation

Correct order: Value total goodwill Find retiring partner's ratio Multiply for share Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Calculation before valuation impossible.
Option C → Reverse sequence incorrect.
Option D → Ratio may be identified after valuation.

🎯 Strategy

Used

Sequential Accounting Logic

Application:

�� Arrange goodwill computation process.

Final Logic:

�� Valuation precedes distribution.

🧠 Memory Trick

"Value → Ratio → Multiply"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Goodwill Calculation – Page reference may vary by edition.

5 If partner A retires, and partners B and C continue, the amount B pays to compensate A for goodwill is calculated as:

A Firm's Total Goodwill × B's Old Profit Share

B Firm's Total Goodwill × B's New Profit Share

C Firm's Total Goodwill × B's Gaining Share

D A's Share of Goodwill × B's Old Profit Share

💡 Short Explanation

Gaining partners compensate retiring partner. Compensation based on gain. Gaining share applied.

✅ Correct Answer Explanation

The continuing partner compensates in proportion to gained share. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Old share irrelevant.
Option B → Entire new share not applicable.
Option D → Old share not basis.

🎯 Strategy

Used

Formula Recognition

Application:

�� Identify compensation basis.

Final Logic:

�� Gain determines goodwill burden.

🧠 Memory Trick

"Gainers Pay Goodwill"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Compensation Principle – Page reference may vary by edition.

6 Keshav, Nirmal, and Pankaj share profits 4:3:2. Nirmal retires. Keshav and Pankaj share future profits 5:3. What is the gaining ratio between Keshav and Pankaj?

A 5:3

B 4:2

C 1:1

D 13:11

💡 Short Explanation

Old shares compared with new shares. Gains individually calculated. Gain ratio simplified.

✅ Correct Answer Explanation

Keshav's Gain: 5/8 − 4/9 = 13/72 Pankaj's Gain: 3/8 − 2/9 = 11/72 Gaining Ratio: 13 : 11 Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → New ratio only.
Option B → Old ratio partial.
Option C → Gains unequal.

🎯 Strategy

Used

Gaining Ratio Calculation

Application:

�� New Share − Old Share.

Final Logic:

�� Gain proportions become 13:11.

🧠 Memory Trick

"Gain = New − Old"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Gaining Ratio – Page reference may vary by edition.

7 Keshav, Nirmal, and Pankaj share profits 4:3:2. Nirmal retires. Firm's goodwill is Rs. 72,000. Keshav and Pankaj's gaining ratio is 13:11. What amounts are debited to Keshav and Pankaj?

A Keshav: Rs. 13,000; Pankaj: Rs. 11,000

B Keshav: Rs. 24,000; Pankaj: Rs. 0

C Keshav: Rs. 12,000; Pankaj: Rs. 12,000

D Keshav: Rs. 36,000; Pankaj: Rs. 36,000

💡 Short Explanation

Retiring partner's share calculated. Distributed in gaining ratio. Gainers debited proportionately.

✅ Correct Answer Explanation

Nirmal's Share: 72000 × 3/9 = 24000 Allocation: 24000 × 13/24 = 13000 24000 × 11/24 = 11000 Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Entire burden not on Keshav.
Option C → Gain ratio unequal.
Option D → Incorrect allocation.

🎯 Strategy

Used

Goodwill Distribution

Application:

�� Retiring Share × Gaining Ratio.

Final Logic:

�� Burden shared proportionately.

🧠 Memory Trick

"Goodwill Shared by Gainers"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Debit Gaining Partners – Page reference may vary by edition.

8 When goodwill is not in the books:
I. The retiring partner is credited with the entire firm's goodwill.
II. The retiring partner is credited only with their proportionate share of goodwill.
III. The continuing partners are debited in their old profit-sharing ratio.

A I and III only

B II only

C I only

D II and III only

💡 Short Explanation

Retiring partner gets own share only. Gainers debited in gaining ratio. Old ratio not used.

✅ Correct Answer Explanation

Only the retiring partner's share is adjusted. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Entire goodwill not credited.
Option C → Statement II true.
Option D → Statement III false.

🎯 Strategy

Used

Statement Evaluation

Application:

�� Verify each statement separately.

Final Logic:

�� Only Statement II correct.

🧠 Memory Trick

"Only Share, Not Full Goodwill"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Goodwill Not in Books – Page reference may vary by edition.

9 Match the scenarios with their correct debit treatments:

List 1	List 2
1. Existing Goodwill in the balance sheet	a. Debited to all partners' capital accounts in the old ratio
2. Newly valued unrecorded goodwill	b. Debited to gaining partners' capital accounts only
3. A continuing partner who sacrifices a share	c. Credited for the sacrificed share (not debited)
4. Hidden Goodwill adjustment	d. Debited to gaining partners based on the excess lump sum

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

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

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

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

💡 Short Explanation

Existing goodwill written off. New goodwill debits gainers. Sacrificing partner credited.

✅ Correct Answer Explanation

Correct matching: Existing goodwill → old ratio debit Unrecorded goodwill → gaining partners debit Sacrificing partner → credited Hidden goodwill → gaining partners debit Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Multiple incorrect mappings.
Option B → Existing goodwill mismatch.
Option C → Sacrifice incorrectly treated.

🎯 Strategy

Used

Matching Logic

Application:

�� Match adjustment treatments.

Final Logic:

�� Only Option D fully correct.

🧠 Memory Trick

"Old Goodwill Old Ratio"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Journal Entries – Page reference may vary by edition.

10 In a situation where the new profit-sharing ratio causes a continuing partner to sacrifice a part of their share, their capital account regarding goodwill will be:

A Credited along with the retiring partner's capital account.

B Debited along with the retiring partner's capital account.

C Left completely unadjusted.

D Debited for the entire firm's goodwill.

💡 Short Explanation

Sacrificing partner loses share. Compensation credited accordingly. Goodwill adjustment made.

✅ Correct Answer Explanation

Sacrificing partner is compensated for reduction in share. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Sacrificing partner not debited.
Option C → Adjustment necessary.
Option D → Entire goodwill not debited.

🎯 Strategy

Used

Conceptual Understanding

Application:

�� Identify sacrifice treatment.

Final Logic:

�� Sacrifice requires compensation credit.

🧠 Memory Trick

"Sacrifice Means Credit"

11 Deepa, Neeru, and Shilpa share profits 5:3:2. Neeru retires. Deepa and Shilpa share future profits 2:3. What is Deepa's gaining or sacrificing share?

A Gain of 1/10

B Sacrifice of 1/10

C Gain of 4/10

D Sacrifice of 4/10

💡 Short Explanation

Old share compared with new share. New share becomes smaller. Difference represents sacrifice.

✅ Correct Answer Explanation

Deepa's Old Share: 5/10 Deepa's New Share: 2/5 = 4/10 Sacrifice: 4/10 − 5/10 = −1/10 Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Result is negative, not gain.
Option C → Incorrect calculation.
Option D → Wrong sacrifice amount.

🎯 Strategy

Used

Gain/Sacrifice Calculation

Application:

�� New Share − Old Share.

Final Logic:

�� Negative result indicates sacrifice.

🧠 Memory Trick

"Negative Difference = Sacrifice"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Sacrifice Adjustment – Page reference may vary by edition.

12 Using the data from the previous question (Firm Goodwill = Rs. 1,20,000, Neeru retires (3/10), Deepa sacrifices (1/10), Shilpa gains (4/10)). How much will Shilpa compensate?

A Shilpa pays Neeru Rs. 12,000 and Deepa Rs. 36,000.

B Shilpa pays Neeru Rs. 36,000 and Deepa pays Neeru Rs. 12,000.

C Shilpa pays Neeru Rs. 36,000 and Deepa Rs. 12,000.

D Shilpa pays Neeru Rs. 48,000 only.

💡 Short Explanation

Neeru's goodwill share calculated. Shilpa gains additional share. Deepa's sacrifice compensated.

✅ Correct Answer Explanation

Neeru's Share of Goodwill: 120000 × 3/10 = 36000 Deepa's Sacrifice: 120000 × 1/10 = 12000 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Payments reversed incorrectly.
Option B → Deepa compensates incorrectly.
Option D → Deepa's sacrifice ignored.

🎯 Strategy

Used

Goodwill Compensation Logic

Application:

�� Goodwill × Share/Sacrifice.

Final Logic:

�� Gaining partner compensates both retiring and sacrificing partners.

🧠 Memory Trick

"Gainer Compensates Others"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Mixed Adjustment Case – Page reference may vary by edition.

13 Why is existing goodwill written off the books upon a partner's retirement?

A Because the law prohibits any intangible assets on the balance sheet.

B To clear the old valuation before adjusting for the newly agreed current value of goodwill.

C So the retiring partner can take the physical cash equivalent.

D To artificially lower the firm's tax liabilities.

💡 Short Explanation

Old valuation becomes outdated. New value must be adjusted. Existing goodwill removed first.

✅ Correct Answer Explanation

Existing goodwill is written off to avoid duplication and reflect current valuation. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Intangible assets allowed.
Option C → Goodwill not physical cash.
Option D → Tax reduction not objective.

🎯 Strategy

Used

Conceptual Understanding

Application:

�� Identify purpose of write-off.

Final Logic:

�� Old goodwill removed before fresh adjustment.

🧠 Memory Trick

"Old Goodwill Cleared First"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Existing Goodwill – Page reference may vary by edition.

14 The journal entry to write off existing goodwill involves:

A All Partners' Capital A/c Dr. To Goodwill A/c

B Gaining Partners' Capital A/c Dr. To Goodwill A/c

C Goodwill A/c Dr. To All Partners' Capital A/c

D Retiring Partner's Capital A/c Dr. To Goodwill A/c

💡 Short Explanation

Existing goodwill removed from books. Partners bear write-off collectively. Goodwill account credited.

✅ Correct Answer Explanation

Existing goodwill is written off in old ratio among all partners. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Only for new goodwill adjustment.
Option C → Reverse entry incorrect.
Option D → Retiring partner alone not responsible.

🎯 Strategy

Used

Journal Entry Recall

Application:

�� Identify write-off entry.

Final Logic:

�� Old partners bear goodwill removal.

🧠 Memory Trick

"Write-Off = Debit Capitals"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Written Off Goodwill – Page reference may vary by edition.

15 R retires. His capital account balance after all adjustments for reserves and revaluation is Rs. 60,000. P and Q agree to pay him Rs. 75,000. What is the value of R's hidden goodwill?

A Rs. 75,000

B Rs. 60,000

C Rs. 15,000

D Rs. 1,35,000

💡 Short Explanation

Amount paid exceeds adjusted capital. Excess treated as goodwill. Hidden goodwill calculated.

✅ Correct Answer Explanation

Hidden Goodwill: 75000 − 60000 = 15000 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Total payment only.
Option B → Adjusted capital only.
Option D → Incorrect addition.

🎯 Strategy

Used

Hidden Goodwill Calculation

Application:

�� Amount Paid − Adjusted Capital.

Final Logic:

�� Excess amount represents hidden goodwill.

🧠 Memory Trick

"Excess Payment = Hidden Goodwill"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Hidden Goodwill – Page reference may vary by edition.

16 Assertion (A): A lump sum payment to a retiring partner that exceeds their adjusted capital balance implies the existence of hidden goodwill.
Reason (R): Partners often agree to a higher payout to compensate the retiring partner for their share of the firm's unrecorded brand value or reputation.

A A is false, but R is true.

B A is true, but R is false.

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

D Both A and R are true, and R is the correct explanation of A.

💡 Short Explanation

Excess payment implies goodwill. Unrecorded reputation compensated. Reason explains assertion.

✅ Correct Answer Explanation

The additional payment above adjusted capital represents hidden goodwill value. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Assertion true.
Option B → Reason also true.
Option C → Reason directly explains assertion.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

�� Relate excess payment with hidden goodwill.

Final Logic:

�� Extra payment compensates goodwill value.

🧠 Memory Trick

"Higher Payment = Hidden Goodwill"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Excess Treated as Goodwill – Page reference may vary by edition.

17 Which statements correctly describe the calculation of the retiring partner's share of goodwill?
I. It is calculated by multiplying the firm's total goodwill by the retiring partner's old profit share.
II. It includes a mandatory 10% bonus required by the Partnership Act.
III. It must be subtracted from their accumulated reserves.

A I only

B I and II only

C II and III only

D I, II, and III

💡 Short Explanation

Goodwill based on old share. No mandatory legal bonus. Reserves treated separately.

✅ Correct Answer Explanation

Retiring partner's goodwill share depends only on total goodwill and old ratio. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → No mandatory 10% bonus.
Option C → Statements II and III false.
Option D → Only Statement I true.

🎯 Strategy

Used

Statement Verification

Application:

�� Check each statement independently.

Final Logic:

�� Goodwill share strictly ratio-based.

🧠 Memory Trick

"Goodwill × Old Share"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Goodwill Calculation – Page reference may vary by edition.

18 Arrange the steps to allocate the compensation burden among continuing partners:
(i) Determine the new profit-sharing ratio.
(ii) Subtract the old ratio from the new ratio to find the gaining share.
(iii) Use the gaining ratio to split the retiring partner's goodwill share.

A (iii), (ii), (i)

B (ii), (i), (iii)

C (i), (iii), (ii)

D (i), (ii), (iii)

💡 Short Explanation

New ratio identified first. Gain calculated afterward. Compensation allocated finally.

✅ Correct Answer Explanation

Correct order: Determine new ratio Compute gaining share Allocate goodwill burden Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Reverse order incorrect.
Option B → Gain impossible before new ratio.
Option C → Allocation before gain incorrect.

🎯 Strategy

Used

Sequential Accounting Logic

Application:

�� Arrange goodwill allocation steps.

Final Logic:

�� Gain calculation precedes allocation.

🧠 Memory Trick

"New → Gain → Allocate"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Allocation among Partners – Page reference may vary by edition.

19 Category: Goodwill Effects Passage for Q19: "When goodwill does not appear in the books of the firm, credit is given to the retiring partner for the share in goodwill by debiting the goodwill account to gaining partners capital accounts (individually) in their gaining ratio. The journal entry is: Gaining Partners Capital A/c Dr. (Individually) To Retiring Partners Capital A/c (Share in goodwill of retiring partner adjusted)"
Based on the passage, the amounts debited to the individual gaining partners are determined by their:

A Fixed capital contributions.

B Old profit-sharing ratio.

C Gaining ratio.

D Equal proportions.

💡 Short Explanation

Gaining partners compensate retiring partner. Burden shared proportionately. Gaining ratio applied.

✅ Correct Answer Explanation

The passage clearly states that partners are debited in their gaining ratio. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Capitals unrelated.
Option B → Old ratio not used.
Option D → Equal sharing unnecessary.

🎯 Strategy

Used

Passage Interpretation

Application:

�� Identify allocation basis.

Final Logic:

�� Gain determines compensation burden.

🧠 Memory Trick

"Goodwill by Gaining Ratio"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Capital Adjustment Impact – Page reference may vary by edition.

20 Category: Goodwill Effects Passage for Q20: "When goodwill does not appear in the books of the firm, credit is given to the retiring partner for the share in goodwill by debiting the goodwill account to gaining partners capital accounts (individually) in their gaining ratio. The journal entry is: Gaining Partners Capital A/c Dr. (Individually) To Retiring Partners Capital A/c (Share in goodwill of retiring partner adjusted)"
Why are the gaining partners' capital accounts debited in this transaction?

A To penalize them for unrecorded liabilities.

B To reflect the cost of acquiring the retiring partner's share of future profits.

C To increase the overall capital base of the firm.

D To distribute accumulated past losses.

💡 Short Explanation

Continuing partners gain extra profits. Compensation therefore necessary. Capital accounts debited accordingly.

✅ Correct Answer Explanation

Gaining partners compensate retiring partner because they benefit from increased future share. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → No penalty involved.
Option C → Capital increase not objective.
Option D → Loss distribution unrelated.

🎯 Strategy

Used

Conceptual Understanding

Application:

�� Identify reason for debit entry.

Final Logic:

�� Gain in future profits creates compensation obligation.

🧠 Memory Trick

"Future Gain Requires Payment"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Profit Share Effect – Page reference may vary by edition.

CUET UG Accountancy Booster Test 1 Goodwill Treatment

Test Complete!

Answer Review