CUET UG Accountancy Booster Test 3 Goodwill Treatment -

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CUET UG Accountancy Booster Test 2 Goodwill Treatment

⏱️ 30 Minutes

❓ 20 Questions

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

CUET UG Accountancy Booster Test 2 Goodwill Treatment

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QUESTION 1 OF 20

Evaluate the following statements regarding the nature of goodwill in retirement:
I. It is an unrecorded asset that reflects the firm's earning capacity built by all partners.
II. The retiring partner is denied a share if the goodwill is not formally recorded in the Balance Sheet.
III. It must be compensated by the remaining partners who benefit from it in the future.

Answer Review

1 Evaluate the following statements regarding the nature of goodwill in retirement:
I. It is an unrecorded asset that reflects the firm's earning capacity built by all partners.
II. The retiring partner is denied a share if the goodwill is not formally recorded in the Balance Sheet.
III. It must be compensated by the remaining partners who benefit from it in the future.

A I and II only

B II and III only

C I and III only

D All of the above

💡 Short Explanation

Goodwill reflects earning reputation. Recording in books not compulsory. Retiring partner deserves compensation.

✅ Correct Answer Explanation

Goodwill is an intangible asset created through joint efforts. Even if it is not shown in the Balance Sheet, the retiring partner is entitled to compensation. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Statement II false.
Option B → Statement II incorrect.
Option D → All statements not true.

🎯 Strategy

Used

Statement Verification

Application:

�� Evaluate each goodwill statement carefully.

Final Logic:

�� Only Statements I and III are correct.

🧠 Memory Trick

"Goodwill Exists Even if Unrecorded"

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

2 Assertion (A): Even in the event of sudden death, the deceased partner's executor has a legally binding right to claim the partner's share of the firm's goodwill.
Reason (R): Goodwill is considered a personal asset belonging exclusively to the continuing partners.

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

Executor can claim goodwill share. Goodwill belongs to firm collectively. Reason statement incorrect.

✅ Correct Answer Explanation

The deceased partner's executor has a valid claim over goodwill. However, goodwill is a firm asset, not the exclusive property of continuing partners. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

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

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

�� Verify legal right and ownership.

Final Logic:

�� Goodwill belongs to partnership collectively.

🧠 Memory Trick

"Executor Has Goodwill Right"

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

3 If the partnership deed lacks a specific clause for valuing goodwill upon retirement, how is the valuation generally determined?

A By mutual agreement among all partners at the time of retirement.

B Automatically set to zero.

C Fixed at exactly three times the previous year's profit.

D Decided solely by the retiring partner.

💡 Short Explanation

No fixed statutory formula mandatory. Partners decide mutually. Agreement becomes basis.

✅ Correct Answer Explanation

When the deed is silent, goodwill value is decided through agreement among partners. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Goodwill not automatically zero.
Option C → No universal fixed formula.
Option D → One partner cannot decide alone.

🎯 Strategy

Used

Conceptual Understanding

Application:

�� Identify basis of valuation.

Final Logic:

�� Mutual agreement governs valuation.

🧠 Memory Trick

"No Clause = Mutual Agreement"

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

4 When hidden goodwill is present, what is the implicit mathematical formula to find the entire firm's total goodwill, assuming the retiring partner's share is known?

A Firm's Total Goodwill = Hidden Goodwill / Gaining Ratio

B Firm's Total Goodwill = (Lump Sum Paid - Adjusted Capital) / Retiring Partner's Profit Share

C Firm's Total Goodwill = Lump Sum Paid × Retiring Partner's Profit Share

D Firm's Total Goodwill = Adjusted Capital / Old Profit Sharing Ratio

💡 Short Explanation

Excess payment indicates hidden goodwill. Excess equals retiring share. Divide by share to get total.

✅ Correct Answer Explanation

Formula: Firm Goodwill = (Lump Sum Paid − Adjusted Capital) ÷ Retiring Partner's Share Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Gaining ratio not denominator.
Option C → Wrong multiplication approach.
Option D → Incorrect relationship.

🎯 Strategy

Used

Formula Recognition

Application:

�� Hidden goodwill share ÷ retiring share.

Final Logic:

�� Entire goodwill derived proportionately.

🧠 Memory Trick

"Excess ÷ Share = Total Goodwill"

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

5 What underlying accounting concept drives the rule that a continuing partner who sacrifices a portion of their profit share must also be credited for goodwill?

A The Going Concern Concept.

B The Money Measurement Concept.

C The Cost Principle.

D The principle of equity, ensuring anyone giving up future profit share is compensated for the firm's generated value.

💡 Short Explanation

Sacrificing partner loses future benefits. Fair compensation necessary. Equity principle applied.

✅ Correct Answer Explanation

Any partner sacrificing future profit share deserves compensation through goodwill adjustment. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Going concern unrelated.
Option B → Measurement principle irrelevant.
Option C → Cost principle unrelated.

🎯 Strategy

Used

Conceptual Understanding

Application:

�� Identify fairness principle.

Final Logic:

�� Equity ensures proper compensation.

🧠 Memory Trick

"Sacrifice Requires Compensation"

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

6 Deepa, Neeru, and Shilpa share 5:3:2. Firm goodwill is Rs. 1,20,000. Neeru retires. New ratio of Deepa and Shilpa is 2:3. Shilpa's gain is 4/10. Deepa's sacrifice is 1/10. What is the total monetary amount Shilpa must bear as a debit to her capital account?

A Rs. 48,000

B Rs. 36,000

C Rs. 12,000

D Rs. 1,20,000

💡 Short Explanation

Shilpa compensates Neeru and Deepa. Both shares added together. Total debit calculated.

✅ Correct Answer Explanation

Neeru's Share: 120000 × 3/10 = 36000 Deepa's Sacrifice: 120000 × 1/10 = 12000 Total Debit: 36000 + 12000 = 48000 Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Only Neeru's share considered.
Option C → Only sacrifice considered.
Option D → Entire goodwill not borne alone.

🎯 Strategy

Used

Goodwill Compensation Calculation

Application:

�� Add retiring and sacrificing shares.

Final Logic:

�� Total debit = Rs. 48,000.

🧠 Memory Trick

"Gainers Pay Total Compensation"

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

7 In a complex retirement where one continuing partner also sacrifices, sequence the journal entry steps:
(i) Debit the gaining continuing partner(s).
(ii) Calculate the total firm goodwill.
(iii) Credit the sacrificing continuing partner.
(iv) Credit the retiring partner.

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

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

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

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

💡 Short Explanation

Goodwill determined first. Debit entries identified next. Credit entries recorded afterward.

✅ Correct Answer Explanation

Correct sequence: Calculate goodwill Debit gaining partners Credit retiring partner Credit sacrificing partner Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Goodwill must be calculated first.
Option C → Reverse order incorrect.
Option D → Debit should precede credits.

🎯 Strategy

Used

Sequential Journal Logic

Application:

�� Arrange accounting process logically.

Final Logic:

�� Valuation precedes entries.

🧠 Memory Trick

"Value → Debit → Credit"

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

8 Jaya, Kirti, Ekta, and Shewata share profits 2:1:2:1. Jaya retires. Goodwill is Rs. 36,000. Kirti, Ekta, and Shewata will share equally (1:1:1). Jaya's share to be credited is:

A Rs. 6,000

B Rs. 36,000

C Rs. 12,000

D Rs. 18,000

💡 Short Explanation

Jaya's old share identified. Goodwill proportion applied. Share credited accordingly.

✅ Correct Answer Explanation

Jaya's Share: 36000 × 2/6 = 12000 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect ratio.
Option B → Entire goodwill not payable.
Option D → Wrong fraction applied.

🎯 Strategy

Used

Share Calculation

Application:

�� Goodwill × Old Share.

Final Logic:

�� Jaya entitled to Rs. 12,000.

🧠 Memory Trick

"Goodwill × Share"

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

9 Match the mathematical outcomes to their correct journal treatments:

List 1	List 2
1. New Share > Old Share	a. Debited for goodwill proportion
2. New Share < Old Share (Continuing Partner)	b. Credited for goodwill proportion
3. Retiring Partner	c. Credited along with retiring partner
4. Partner with New Share = Old Share	d. Neither debited nor credited

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

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

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

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

💡 Short Explanation

Gainers debited for goodwill. Sacrificers credited. Unchanged partner unaffected.

✅ Correct Answer Explanation

Correct matching: Gain → Debit Sacrifice → Credit Retiring Partner → Credit No change → No adjustment Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Gain incorrectly credited.
Option C → Retiring partner mismatch.
Option D → Multiple incorrect treatments.

🎯 Strategy

Used

Matching Logic

Application:

�� Match ratio effect with treatment.

Final Logic:

�� Option A fully correct.

🧠 Memory Trick

"Gainers Debit, Sacrificers Credit"

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

10 Which partners can potentially have their capital accounts credited during the goodwill adjustment entry?
I. The retiring partner.
II. A continuing partner whose profit share decreases.
III. A continuing partner whose profit share increases.

A I only

B I and II only

C II and III only

D I, II, and III

💡 Short Explanation

Retiring partner compensated. Sacrificing partner compensated. Gaining partner debited instead.

✅ Correct Answer Explanation

Only retiring and sacrificing partners receive goodwill credits. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Sacrificing partner omitted.
Option C → Gaining partner wrongly included.
Option D → Gaining partner not credited.

🎯 Strategy

Used

Conceptual Understanding

Application:

�� Identify who receives goodwill.

Final Logic:

�� Compensation goes to retiring/sacrificing partners.

🧠 Memory Trick

"Receivers Get Credit"

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

11 If firm goodwill is Rs. 90,000, and continuing partner X sacrifices a 1/9th share due to the new profit-sharing arrangement, how much will X's capital account be credited?

A Rs. 90,000

B Rs. 20,000

C Rs. 10,000

D Rs. 5,000

💡 Short Explanation

Sacrificing partner deserves compensation. Share sacrificed equals 1/9. Goodwill proportion credited.

✅ Correct Answer Explanation

Calculation: 90000 × 1/9 = 10000 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Entire goodwill not credited.
Option B → Incorrect proportion.
Option D → Half of actual amount.

🎯 Strategy

Used

Sacrifice Share Calculation

Application:

�� Goodwill × Sacrificed Share.

Final Logic:

�� X receives Rs. 10,000 compensation.

🧠 Memory Trick

"Sacrifice × Goodwill"

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

12 Assertion (A): It is possible for only one continuing partner to bear the entire debit for goodwill compensation, even if multiple partners continue.
Reason (R): If the new profit-sharing ratio is set such that only one continuing partner gains while the others maintain or decrease their share, the gaining partner absorbs the full burden.

A A is true, but R is false.

B A is false, but R is true.

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

Only gaining partners bear burden. One partner may gain entirely. Therefore full debit possible.

✅ Correct Answer Explanation

If only one partner gains additional share, that partner alone compensates retiring/sacrificing partners. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

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

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

�� Identify who bears goodwill burden.

Final Logic:

�� Gain determines compensation liability.

🧠 Memory Trick

"Only Gainers Pay"

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

13 If a balance sheet shows goodwill of Rs. 30,000 and A, B, and C share profits equally, what is the exact debit to B's capital account to write it off when C retires?

A Rs. 30,000

B Rs. 15,000

C Rs. 10,000

D Rs. 0

💡 Short Explanation

Existing goodwill written off fully. Shared equally in old ratio. Each partner bears equal amount.

✅ Correct Answer Explanation

Calculation: 30000 ÷ 3 = 10000 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Entire amount not borne by B.
Option B → Incorrect equal share.
Option D → Goodwill must be written off.

🎯 Strategy

Used

Goodwill Write-Off Calculation

Application:

�� Existing Goodwill ÷ Number of Partners.

Final Logic:

�� B's share = Rs. 10,000.

🧠 Memory Trick

"Old Goodwill Shared in Old Ratio"

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

14 Arrange the complete treatment of goodwill if existing goodwill appears in the books and a new valuation is made:
(i) Debit gaining partners and credit retiring partner for the new goodwill valuation.
(ii) Debit all partners' capital accounts in the old ratio.
(iii) Credit the existing Goodwill account to write it off.

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

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

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

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

💡 Short Explanation

Existing goodwill removed first. Goodwill account credited next. New valuation adjusted afterward.

✅ Correct Answer Explanation

Correct sequence: Debit all partners' capitals Credit Goodwill Account Record new goodwill adjustment Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Old goodwill must first be removed.
Option B → Credit cannot precede debit.
Option C → New valuation adjusted too early.

🎯 Strategy

Used

Sequential Adjustment Logic

Application:

�� Write off old goodwill before new adjustment.

Final Logic:

�� Removal precedes fresh valuation.

🧠 Memory Trick

"Write Off Old First"

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

15 P, Q, and R share profits equally. R retires. R's capital account shows a balance of Rs. 1,00,000 after all revaluations and reserve distributions. The firm agrees to settle his account by paying Rs. 1,30,000. What is the firm's total hidden goodwill?

A Rs. 30,000

B Rs. 90,000

C Rs. 1,30,000

D Rs. 1,00,000

💡 Short Explanation

Excess settlement indicates hidden goodwill. Excess equals retiring share. Total goodwill calculated proportionately.

✅ Correct Answer Explanation

Hidden Goodwill Share: 130000 − 100000 = 30000 R's Share = 1/3 Total Goodwill: 30000 × 3 = 90000 Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Hidden share only.
Option C → Settlement amount only.
Option D → Adjusted capital only.

🎯 Strategy

Used

Hidden Goodwill Calculation

Application:

�� Excess Payment ÷ Share.

Final Logic:

�� Total goodwill = Rs. 90,000.

🧠 Memory Trick

"Excess × Reciprocal of Share"

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

16 In the previous scenario (R's hidden goodwill = Rs. 30,000), assuming P and Q continue sharing equally, what is the journal entry for the hidden goodwill?

A P's Capital Dr. 15,000, Q's Capital Dr. 15,000 To R's Capital 30,000

B P's Capital Dr. 30,000, Q's Capital Dr. 30,000 To R's Capital 60,000

C Goodwill A/c Dr. 30,000 To R's Capital 30,000

D R's Capital Dr. 30,000 To P's Capital 15,000, To Q's Capital 15,000

💡 Short Explanation

P and Q gain equally. Hidden goodwill shared equally. R receives total credit.

✅ Correct Answer Explanation

Hidden Goodwill = Rs. 30,000 P and Q gaining ratio = 1:1 Each partner bears: 30000 ÷ 2 = 15000 Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Amount doubled.
Option C → Goodwill account not raised.
Option D → Reverse entry incorrect.

🎯 Strategy

Used

Journal Entry Logic

Application:

�� Debit gainers, credit retiring partner.

Final Logic:

�� Equal gain means equal debit.

🧠 Memory Trick

"Gainers Debit, Retiring Credit"

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

17 In hidden goodwill calculations, why must all adjustments for reserves and revaluation be made before comparing the capital balance to the lump sum payment?

A To comply with income tax depreciation rules.

B To ensure the capital balance accurately reflects the partner's true equity before extracting the unrecorded intangible value.

C To artificially inflate the retiring partner's payout.

D To hide the firm's actual cash reserves.

💡 Short Explanation

Tangible adjustments completed first. Remaining excess reflects goodwill only. Accurate equity determination necessary.

✅ Correct Answer Explanation

Revaluation and reserve adjustments ensure the capital balance shows the true adjusted value before goodwill is identified. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Tax rules unrelated.
Option C → Artificial inflation incorrect.
Option D → No concealment purpose.

🎯 Strategy

Used

Conceptual Understanding

Application:

�� Separate tangible and intangible adjustments.

Final Logic:

�� Excess amount should represent goodwill only.

🧠 Memory Trick

"Adjust First, Compare Later"

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

18 When a retiring partner is paid a lump sum generating hidden goodwill, how is this hidden goodwill allocated among the remaining partners?

A Debited to their capital accounts in the old profit-sharing ratio.

B Credited to their capital accounts in the new profit-sharing ratio.

C Debited to their capital accounts in their gaining ratio.

D Written off completely against the firm's general reserve.

💡 Short Explanation

Continuing partners gain future benefits. Compensation burden shared accordingly. Gaining ratio applied.

✅ Correct Answer Explanation

Hidden goodwill is borne by gaining partners according to their gain. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Old ratio not used.
Option B → Gainers are debited, not credited.
Option D → Reserve unrelated.

🎯 Strategy

Used

Goodwill Allocation Logic

Application:

�� Apply gaining ratio principle.

Final Logic:

�� Gainers compensate retiring partner.

🧠 Memory Trick

"Hidden Goodwill → Gaining Ratio"

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

19 Category: Goodwill Effects Passage for Q19: "If the firm has agreed to settle the retiring or deceased partner's account by paying him a lump sum amount, then the amount paid to him in excess of what is due to him, based on the balance in his capital account after making necessary adjustments in respect of accumulated profits and losses and revaluation of assets and liabilities, etc., shall be treated as his share of goodwill (known as hidden goodwill)."
Based on the passage, what immediate impact does the discovery of this "excess amount" have on the continuing partners' capital accounts?

A It is debited to the continuing partners in their gaining ratio.

B It is credited to all partners equally.

C It has no impact on continuing partners.

D It reduces the firm's physical asset values.

💡 Short Explanation

Excess amount treated as goodwill. Gaining partners bear burden. Capitals therefore debited.

✅ Correct Answer Explanation

The continuing partners compensate the retiring partner through debit to their capital accounts in gaining ratio. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Equal credit incorrect.
Option C → Continuing partners affected directly.
Option D → Physical assets unaffected.

🎯 Strategy

Used

Passage Interpretation

Application:

�� Identify goodwill adjustment effect.

Final Logic:

�� Gainers absorb hidden goodwill.

🧠 Memory Trick

"Gainers Bear Goodwill"

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

20 Category: Goodwill Effects Passage for Q20: "If the firm has agreed to settle the retiring or deceased partner's account by paying him a lump sum amount, then the amount paid to him in excess of what is due to him, based on the balance in his capital account after making necessary adjustments in respect of accumulated profits and losses and revaluation of assets and liabilities, etc., shall be treated as his share of goodwill (known as hidden goodwill)."
What is the specific accounting term used in the passage to describe the premium paid over the adjusted capital balance due to future profit-sharing advantages?

A Super Profit

B Revaluation Surplus

C Accumulated Reserve

D Hidden Goodwill

💡 Short Explanation

Excess settlement indicates goodwill. Goodwill not recorded separately. Therefore called hidden goodwill.

✅ Correct Answer Explanation

The excess amount paid over adjusted capital balance represents hidden goodwill. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Super profit different concept.
Option B → Revaluation unrelated.
Option C → Reserve unrelated.

🎯 Strategy

Used

Terminology Identification

Application:

�� Identify correct accounting term.

Final Logic:

�� Excess unrecorded goodwill = hidden goodwill.

🧠 Memory Trick

"Extra Payment = Hidden Goodwill"

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

CUET UG Accountancy Booster Test 2 Goodwill Treatment

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