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Q 1 What is meant by goodwill? Name any two methods of valuation of goodwill. (Marks 2)
Ans 1 Goodwill : Goodwill is the advantage of good name, relations of a business. It is the attractive force that brings in customers. It distinguishes an established business from a new one as it helps the business to earn more profits.
Methods of valuation of goodwill :
(i) Average Profits Method
(ii) Super Profit Method.
Q 2 R and S are partners sharing profits in the ratio of 5 : 3. T joins the firm as a new Partner. R gives 1/4 of his share and S gives 2/5 of his share to the new partner. Find out the new ratio. (Marks 3)
Ans 2 R’s share = 5/8
S’s share = 3/8
R’s sacrifice = 1/4 x 5/8 = 5/32
S’s sacrifice = 2/5 x 3/8 = 6/40
Thus, R’s new share = 5/8 - 5/32 = 15/32
S’s new share = 3/8 - 6/40 = 9/40
T’s share = R’s sacrifice + S’s sacrifice
= 5/32 + 6/40
= 49/160
Thus, new ratio R : S : T
15/32 : 9/40 : 49/160
= 75 : 36 : 49
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