1. What does reconstitution of a partnership firm imply?
a) Dissolution of the firm
b) Change in the profit-sharing agreement among partners
c) Admission, retirement, or death of a partner
d) Both b and c
Answer: d) Both b and c
2. When a new partner is admitted, which of the following is adjusted?
a) Goodwill
b) New profit-sharing ratio
c) Revaluation of assets and liabilities
d) All of the above
Answer: d) All of the above
3. If the sacrificing ratio is not specified, it is calculated by subtracting:
a) Old ratio from the new ratio
b) New ratio from the old ratio
c) Total profits from sacrificed profits
d) None of the above
Answer: b) New ratio from the old ratio
4. Goodwill is an example of which type of asset?
a) Tangible
b) Fictitious
c) Intangible
d) Current
Answer: c) Intangible
5. Which Act governs the admission of a new partner into a partnership firm?
a) Indian Contract Act, 1872
b) Partnership Act, 1932
c) Companies Act, 2013
d) Income Tax Act, 1961
Answer: b) Partnership Act, 1932
6. In the case of goodwill, the ratio in which old partners agree to sacrifice their share of profit in favor of the incoming partner is called:
a) Profit-sharing ratio
b) Sacrificing ratio
c) Revaluation ratio
d) Capital ratio
Answer: b) Sacrificing ratio
7. Goodwill is calculated using the Average Profits method by:
a) Dividing the past profits by the number of years
b) Multiplying past profits by the number of years
c) Subtracting expenses from revenue
d) None of the above
Answer: a) Dividing the past profits by the number of years
8. When a new partner contributes capital but no goodwill, his account is debited with the amount of goodwill not brought in, and the old partners’ accounts are credited in:
a) New profit-sharing ratio
b) Old profit-sharing ratio
c) Sacrificing ratio
d) None of the above
Answer: c) Sacrificing ratio
9. What is the correct journal entry for an increase in the value of an asset during revaluation?
a) Revaluation A/c Dr.
To Asset A/c
b) Asset A/c Dr.
To Revaluation A/c
c) Capital A/c Dr.
To Revaluation A/c
d) Revaluation A/c Dr.
To Partner’s Capital A/c
Answer: b) Asset A/c Dr. To Revaluation A/c
10. Which method calculates goodwill by determining the excess of average profit over normal profit?
a) Average Profits Method
b) Super Profits Method
c) Capitalization Method
d) Goodwill Valuation Method
Answer: b) Super Profits Method
11. Hidden goodwill is calculated when:
a) Goodwill is explicitly mentioned
b) Goodwill is inferred from the capital contribution of the incoming partner
c) No goodwill account exists in the books
d) None of the above
Answer: b) Goodwill is inferred from the capital contribution of the incoming partner
12. What is created to adjust bad debts at the time of admission of a partner?
a) Reserve Fund
b) Provision for Doubtful Debts
c) Revaluation Account
d) Goodwill Account
Answer: b) Provision for Doubtful Debts
13. What is transferred to the old partners' capital accounts in the old profit-sharing ratio at the time of admission of a new partner?
a) Accumulated profits and losses
b) Goodwill amount
c) Revaluation gains or losses
d) Both a and c
Answer: d) Both a and c
14. Which of the following is NOT a method of goodwill valuation?
a) Weighted Average Method
b) Super Profits Method
c) Straight-Line Depreciation Method
d) Capitalization Method
Answer: c) Straight-Line Depreciation Method
15. In which situation is the goodwill of a firm written off entirely?
a) Goodwill is not brought in by the new partner
b) Goodwill is internally generated
c) Goodwill appears on the balance sheet
d) The firm decides to retain goodwill
Answer: b) Goodwill is internally generated
16. Revaluation of assets and reassessment of liabilities are done to:
a) Calculate the capital of partners
b) Adjust the current book values to their actual market values
c) Determine the goodwill value
d) None of the above
Answer: b) Adjust the current book values to their actual market values
17. Which of the following represents a mode of reconstitution of a partnership firm?
a) Admission of a new partner
b) Change in the profit-sharing ratio
c) Retirement of a partner
d) All of the above
Answer: d) All of the above
18. What happens to goodwill already existing in the books at the time of a new partner's admission?
a) It is carried forward as it is
b) It is written off in the old partners’ profit-sharing ratio
c) It is distributed among all partners, including the new partner
d) It is transferred to the goodwill account
Answer: b) It is written off in the old partners’ profit-sharing ratio
19. What is the impact of admitting a new partner on the profit-sharing ratio?
a) It remains unchanged
b) It is determined mutually among all partners
c) It depends on the liabilities of the firm
d) It is fixed by the incoming partner
Answer: b) It is determined mutually among all partners
20. If there is a loss on revaluation, it is transferred to:
a) Old partners’ capital accounts in the new ratio
b) Old partners’ capital accounts in the old ratio
c) New partner’s current account
d) Revaluation reserve account
Answer: b) Old partners’ capital accounts in the old ratio
21. What does the super profits method of goodwill valuation focus on?
a) Excess of normal profits over average profits
b) Excess of average profits over normal profits
c) Weighted average of profits
d) Capitalization of normal profits
Answer: b) Excess of average profits over normal profits
22. Sacrificing ratio is calculated when:
a) Partners change their profit-sharing ratio
b) A partner retires from the firm
c) A new partner is admitted
d) None of the above
Answer: c) A new partner is admitted
23. Which factor does NOT directly affect the value of goodwill?
a) Location of the business
b) Market situation
c) Revaluation of liabilities
d) Nature of the business
Answer: c) Revaluation of liabilities
24. Which of the following statements is true about goodwill?
a) Goodwill is a tangible asset
b) Goodwill has an indefinite useful life
c) Goodwill represents a firm's reputation and earning potential
d) Goodwill cannot be purchased or sold
Answer: c) Goodwill represents a firm's reputation and earning potential
25. What is the term used for a liability that was previously unrecorded but is discovered during revaluation?
a) Outstanding liability
b) Hidden liability
c) Unrecorded liability
d) Reassessed liability
Answer: c) Unrecorded liability
26. If no information about the sacrificing ratio is provided, it is assumed to be:
a) Equal to the old profit-sharing ratio
b) Equal to the new profit-sharing ratio
c) Distributed equally among partners
d) None of the above
Answer: a) Equal to the old profit-sharing ratio
27. In the capitalization method of goodwill valuation, goodwill is calculated as:
a) Capitalized value of average profits minus firm’s actual capital
b) Super profits multiplied by a certain number of years
c) Weighted average profits multiplied by a certain number of years
d) None of the above
Answer: a) Capitalized value of average profits minus firm’s actual capital
28. What is the journal entry for an increase in the value of an asset during revaluation?
a) Asset A/c Dr.
To Revaluation A/c
b) Revaluation A/c Dr.
To Asset A/c
c) Capital A/c Dr.
To Revaluation A/c
d) Profit and Loss A/c Dr.
To Asset A/c
Answer: a) Asset A/c Dr. To Revaluation A/c
29. At the time of admission of a new partner, general reserve appearing in the old balance sheet is transferred to:
a) All partners’ capital accounts
b) New partner’s capital account
c) Old partners’ capital accounts
d) None of the above
Answer: c) Old partners’ capital accounts
30. Goodwill arising from a well-known brand is categorized as:
a) Purchased goodwill
b) Internally generated goodwill
c) Tangible asset
d) Revenue expenditure
Answer: b) Internally generated goodwill
31. What is the treatment of accumulated profits or reserves at the time of admitting a new partner?
a) Distributed among all partners in the new profit-sharing ratio
b) Distributed among old partners in the old profit-sharing ratio
c) Added to the goodwill account
d) None of the above
Answer: b) Distributed among old partners in the old profit-sharing ratio
32. When the value of goodwill is inferred from the capital contributed by a new partner, it is called:
a) Realized goodwill
b) Purchased goodwill
c) Hidden goodwill
d) Calculated goodwill
Answer: c) Hidden goodwill
33. A provision for doubtful debts is created during revaluation to:
a) Reduce the liability
b) Increase the value of assets
c) Cover expected losses on receivables
d) Adjust the capital accounts
Answer: c) Cover expected losses on receivables
34. The difference between the total profit-sharing ratio before and after admission is the:
a) Gain ratio
b) Sacrificing ratio
c) Capital ratio
d) Revaluation ratio
Answer: b) Sacrificing ratio
35. A partner retires, and the goodwill is not raised in the books. In this case, the retiring partner is compensated:
a) In cash only
b) Through the profit-sharing ratio
c) By crediting his capital account with the value of goodwill in the old ratio
d) By writing off goodwill from the firm’s assets
Answer: c) By crediting his capital account with the value of goodwill in the old ratio
36. In the weighted average profit method of goodwill valuation, more weightage is given to:
a) Earlier years’ profits
b) Recent years’ profits
c) The highest profit in the series
d) The lowest profit in the series
Answer: b) Recent years’ profits
37. Revaluation of assets at the time of admission ensures:
a) Equal distribution of profits
b) Fair valuation of the firm’s financial position
c) The incoming partner gets a higher share of profits
d) No adjustment to capital accounts is needed
Answer: b) Fair valuation of the firm’s financial position
38. What is NOT included in the calculation of goodwill by the capitalization method?
a) Average profits
b) Total capital employed in the business
c) Normal rate of return
d) Accumulated losses
Answer: d) Accumulated losses
39. If no adjustment is made for goodwill at the time of admission of a new partner:
a) The new partner gains at the expense of the old partners
b) The goodwill is equally divided among all partners
c) The new partner pays compensation directly to the old partners
d) None of the above
Answer: a) The new partner gains at the expense of the old partners
40. Which of the following is an example of a fictitious asset?
a) Goodwill
b) Deferred revenue expenditure
c) Patent
d) Trademark
Answer: b) Deferred revenue expenditure
41. During revaluation, a decrease in the value of an asset is:
a) Credited to the revaluation account
b) Debited to the revaluation account
c) Debited to the partners’ capital accounts
d) None of the above
Answer: b) Debited to the revaluation account
42. A liability previously not recorded is discovered during revaluation. It is:
a) Credited to the revaluation account
b) Debited to the revaluation account
c) Shared by all partners in the new ratio
d) Ignored in the books
Answer: b) Debited to the revaluation account
43. At the time of admission, the new partner is entitled to:
a) Past accumulated profits
b) Future profits only
c) Both past and future profits
d) None of the above
Answer: b) Future profits only
44. When an outgoing partner does not bring goodwill in cash, it is adjusted by:
a) Debiting his capital account
b) Crediting other partners’ capital accounts in the old ratio
c) Writing it off from the revaluation account
d) Debiting his current account
Answer: b) Crediting other partners’ capital accounts in the old ratio
45. Which of these adjustments is made to accumulated losses at the time of admission of a new partner?
a) Written off in the new profit-sharing ratio
b) Transferred to goodwill account
c) Written off in the old profit-sharing ratio
d) Transferred to the new partner’s capital account
Answer: c) Written off in the old profit-sharing ratio
46. A business has a goodwill valued at Rs. 50,000. What type of asset is goodwill considered?
a) Tangible asset
b) Intangible asset
c) Fictitious asset
d) Liquid asset
Answer: b) Intangible asset
47. When goodwill is raised in the books of accounts, it is:
a) Debited to the goodwill account
b) Credited to the goodwill account
c) Debited to the partner's current accounts
d) Ignored in the books
Answer: a) Debited to the goodwill account
48. What happens to a revaluation account showing a credit balance?
a) Transferred to all partners in the new ratio
b) Transferred to old partners in the old ratio
c) Written off as an expense
d) Credited to the new partner’s account
Answer: b) Transferred to old partners in the old ratio
49. Which method of goodwill valuation requires multiplying super profits by the number of years purchased?
a) Average Profits Method
b) Super Profits Method
c) Capitalization Method
d) None of the above
Answer: b) Super Profits Method
50. Goodwill is brought in by a new partner to:
a) Compensate the firm for future losses
b) Compensate old partners for their share of super profits
c) Increase the firm’s capital
d) Reduce the value of revaluation gains
Answer: b) Compensate old partners for their share of super profits
51. When a new partner is admitted, the capital of the firm is calculated based on:
a) The total value of assets
b) The total liabilities
c) The capital contributed by each partner
d) The firm's goodwill
Answer: c) The capital contributed by each partner
52. A new partner’s share of profits is generally determined based on:
a) The capital he brings in
b) The profit-sharing ratio
c) The amount of goodwill he contributes
d) All of the above
Answer: d) All of the above
53. When the new partner brings in additional capital, what is the first step in determining the new capital ratios?
a) Recalculate the profit-sharing ratio
b) Determine the total capital of the firm
c) Adjust for any existing goodwill
d) Allocate the capital in proportion to the new profit-sharing ratio
Answer: b) Determine the total capital of the firm
54. If a partner retires, the goodwill of the firm is:
a) Written off to the old partners’ capital accounts
b) Shared among all partners, including the retiring partner
c) Distributed only among the remaining partners
d) Transferred to the new partner’s capital account
Answer: a) Written off to the old partners’ capital accounts
55. In the Super Profits Method, the normal profit is based on:
a) Past profits of the firm
b) A fixed rate of return on the capital employed
c) The industry standard for profits
d) The amount of capital contributed by the partners
Answer: b) A fixed rate of return on the capital employed
56. When a firm has goodwill already on the books and a new partner is admitted, the existing goodwill is:
a) Written off in the new profit-sharing ratio
b) Retained at its original value
c) Revalued based on the current profits
d) Transferred to the new partner’s capital account
Answer: a) Written off in the new profit-sharing ratio
57. If a partner sacrifices part of their share of profits for a new partner, this is reflected in the:
a) Sacrificing ratio
b) Profit-sharing ratio
c) Revaluation ratio
d) Capitalization ratio
Answer: a) Sacrificing ratio
58. In case of the death of a partner, the firm must:
a) Close the business immediately
b) Continue the business as usual, adjusting for the deceased partner’s share
c) Recalculate the profit-sharing ratio
d) Distribute the deceased partner’s share equally among the remaining partners
Answer: b) Continue the business as usual, adjusting for the deceased partner’s share
59. When a partner retires and his capital is paid off, the goodwill is:
a) Added to the firm’s capital
b) Subtracted from the firm’s capital
c) Shared by the remaining partners based on their old profit-sharing ratio
d) Written off in the ratio of their new profit-sharing ratio
Answer: c) Shared by the remaining partners based on their old profit-sharing ratio
60. The capital accounts of the new partners are adjusted based on:
a) The amount they bring in as capital
b) The amount of goodwill they contribute
c) The profit-sharing ratio agreed upon
d) All of the above
Answer: d) All of the above
61. When a partner contributes capital but no goodwill, the new partner’s current account is debited with:
a) The full amount of goodwill
b) The portion of goodwill not brought by him
c) The amount of capital contributed
d) None of the above
Answer: b) The portion of goodwill not brought by him
62. In case of a loss on revaluation, it is transferred to the capital accounts of:
a) The new partner in the new ratio
b) The old partners in the old ratio
c) The firm’s revaluation account
d) The firm’s profit and loss account
Answer: b) The old partners in the old ratio
63. If goodwill is internally generated, it is:
a) Recognized as an asset in the firm’s books
b) Not recognized as an asset in the firm’s books
c) Debited to the partners’ capital accounts
d) Amortized over 5 years
Answer: b) Not recognized as an asset in the firm’s books
64. A new partner’s share of profits in a firm is generally determined by:
a) His capital contribution
b) A mutual agreement between the old and new partners
c) The existing profit-sharing ratio
d) His performance in the firm
Answer: b) A mutual agreement between the old and new partners
65. In case of the retirement of a partner, the goodwill adjustment is:
a) Added to the retiring partner’s capital account
b) Written off in the ratio of the remaining partners
c) Shared equally among all partners
d) Compensated by the incoming partner
Answer: a) Added to the retiring partner’s capital account
66. Which of the following is the primary objective of revaluing the assets during a reconstitution?
a) To increase the firm’s goodwill
b) To reflect the correct value of assets and liabilities in the books
c) To reduce the capital of the firm
d) To adjust the partner’s profit-sharing ratio
Answer: b) To reflect the correct value of assets and liabilities in the books
67. Which method calculates goodwill by considering the capitalized value of average profits?
a) Super Profits Method
b) Average Profits Method
c) Capitalization of Profits Method
d) Weighted Average Method
Answer: c) Capitalization of Profits Method
68. The goodwill account appears in the books of the firm when:
a) Goodwill is purchased
b) Goodwill is internally generated
c) The firm is sold
d) The profit-sharing ratio changes
Answer: a) Goodwill is purchased
69. What is the effect of admitting a new partner on the total capital of the firm?
a) It decreases
b) It remains the same
c) It increases
d) It depends on the amount of goodwill
Answer: c) It increases
70. At the time of admission, the capital accounts of the partners are adjusted in proportion to:
a) Their profit-sharing ratio
b) Their initial capital contribution
c) The total capital of the firm
d) None of the above
Answer: a) Their profit-sharing ratio
71. When calculating goodwill using the average profits method, which of the following is NOT required?
a) The number of years’ purchase
b) Average profits over a specified period
c) The total capital of the business
d) The firm's profit-sharing ratio
Answer: c) The total capital of the business
72. If a partner does not bring in his share of goodwill in cash, the amount is typically debited to:
a) The new partner’s current account
b) The capital accounts of the remaining partners
c) The profit and loss account
d) The firm's revaluation account
Answer: a) The new partner’s current account
73. When calculating the capitalized value of super profits, the normal profit is determined by:
a) A fixed percentage return on the firm's capital
b) The average profit over the last 5 years
c) The current year’s profits
d) The agreed-upon capital ratio among the partners
Answer: a) A fixed percentage return on the firm's capital
74. In case of a decrease in asset value, the corresponding journal entry would be:
a) Revaluation A/c Dr.
To Asset A/c (Loss)
b) Asset A/c Dr.
To Revaluation A/c (Gain)
c) Revaluation A/c Dr.
To Asset A/c (Gain)
d) Asset A/c Dr.
To Revaluation A/c (Loss)
Answer: a) Revaluation A/c Dr. To Asset A/c (Loss)
75. Which of the following is TRUE about the revaluation of liabilities at the time of partner admission?
a) Revaluation of liabilities increases the liabilities of the firm
b) Revaluation of liabilities decreases the liabilities of the firm
c) Revaluation of liabilities does not affect the firm's total liabilities
d) Revaluation of liabilities is not required at the time of admission
Answer: b) Revaluation of liabilities decreases the liabilities of the firm
76. When a new partner is admitted, and goodwill is not explicitly mentioned, what is the general procedure?
a) Assume goodwill is zero
b) Assume goodwill is inferred from the capital brought by the new partner
c) Assume goodwill is irrelevant
d) Calculate goodwill using the average profits method
Answer: b) Assume goodwill is inferred from the capital brought by the new partner
77. What is the primary purpose of the sacrificing ratio in a partnership reconstitution?
a) To allocate profits based on contributions
b) To calculate the new profit-sharing ratio
c) To adjust the goodwill contributed by new partners
d) To determine the ratio of profits that old partners sacrifice for the new partner
Answer: d) To determine the ratio of profits that old partners sacrifice for the new partner
78. When a new partner brings in capital but not goodwill, which account is credited with the missing amount of goodwill?
a) The new partner's capital account
b) The existing partners' capital accounts in their sacrificing ratio
c) The firm's reserve account
d) The revaluation account
Answer: b) The existing partners' capital accounts in their sacrificing ratio
79. Which method of calculating goodwill is based on the firm’s future profits in excess of a normal return?
a) Average Profits Method
b) Super Profits Method
c) Capitalization of Profits Method
d) Both a and b
Answer: b) Super Profits Method
80. When a new partner is admitted and goodwill is not brought in cash, the goodwill is distributed among the existing partners in:
a) Their old profit-sharing ratio
b) Their new profit-sharing ratio
c) The ratio of their capital contribution
d) The sacrificing ratio
Answer: d) The sacrificing ratio
81. If a partner sacrifices a portion of their profit share for the new partner, this sacrifice is based on:
a) The profit-sharing ratio
b) The capital brought in by the new partner
c) The existing partner’s performance
d) The amount of accumulated profits
Answer: a) The profit-sharing ratio
82. The treatment of accumulated losses at the time of a partner’s admission is:
a) Transferred to the new partner’s current account
b) Written off against the new partner's capital
c) Distributed among old partners according to their old profit-sharing ratio
d) Transferred to the revaluation account
Answer: c) Distributed among old partners according to their old profit-sharing ratio
83. Which of the following is NOT a factor affecting the value of goodwill?
a) Market situation
b) Efficiency of management
c) Nature of business
d) The new partner’s capital contribution
Answer: d) The new partner’s capital contribution
84. When goodwill is already in the books at the time of a partner's admission, the goodwill account is:
a) Written off to the profit and loss account
b) Written off in the old profit-sharing ratio
c) Adjusted to the new profit-sharing ratio
d) Not written off at all
Answer: b) Written off in the old profit-sharing ratio
85. What is the effect of revaluing an asset to a higher value during reconstitution?
a) It increases the capital of the firm
b) It increases the liability of the firm
c) It is transferred to the revaluation account
d) It decreases the capital accounts of old partners
Answer: a) It increases the capital of the firm
86. If a partner’s share of goodwill is credited to his capital account, this reflects:
a) The capital he brings into the firm
b) The total value of goodwill
c) The amount paid by the new partner for goodwill
d) The proportion of profits the partner is entitled to
Answer: b) The total value of goodwill
87. In a partnership, the new partner’s capital is calculated based on:
a) The firm’s total capital
b) The ratio of profits
c) The capital contributed by the old partners
d) The capital required to maintain the agreed profit-sharing ratio
Answer: d) The capital required to maintain the agreed profit-sharing ratio
88. In the event of a change in profit-sharing ratio, the revaluation of assets is done to:
a) Adjust the new profit-sharing ratio
b) Reflect the actual market value of the assets
c) Increase the capital of the new partner
d) Reduce the capital of the existing partners
Answer: b) Reflect the actual market value of the assets
89. Which of the following is NOT a step in the process of admitting a new partner?
a) Revaluation of assets and liabilities
b) Calculation of the new profit-sharing ratio
c) Distribution of accumulated profits
d) Liquidation of the firm’s assets
Answer: d) Liquidation of the firm’s assets
90. The journal entry for the admission of a new partner where no goodwill is brought by the new partner involves:
a) Debiting the new partner’s capital account
b) Crediting the goodwill account
c) Debiting the revaluation account
d) Debiting the existing partners’ capital accounts in the sacrificing ratio
Answer: d) Debiting the existing partners’ capital accounts in the sacrificing ratio
91. When a new partner is admitted and no goodwill is brought in by them, the missing goodwill amount is:
a) Debited to the new partner's capital account
b) Credited to the existing partners’ capital accounts in their sacrificing ratio
c) Added to the new partner's current account
d) Written off against accumulated profits
Answer: b) Credited to the existing partners’ capital accounts in their sacrificing ratio
92. A firm's goodwill is valued at Rs. 40,000. If a new partner is admitted with a 1/4 share, what will be the amount of goodwill that the new partner must bring?
a) Rs. 40,000
b) Rs. 10,000
c) Rs. 20,000
d) Rs. 30,000
Answer: b) Rs. 10,000
93. If a partner’s share in the profits is reduced during reconstitution, it is known as:
a) A sacrifice in the goodwill
b) A sacrifice in the capital
c) A transfer of profits
d) A change in the capital ratio
Answer: a) A sacrifice in the goodwill
94. In case of hidden goodwill, the difference between the total capital of the firm and the combined capital of the partners is considered as:
a) Unrecorded liabilities
b) Goodwill
c) Accumulated profits
d) Capital gain
Answer: b) Goodwill
95. When a new partner is admitted and the existing goodwill is recorded at a certain value, the journal entry for transferring goodwill is:
a) Goodwill A/c Dr.
To New Partner’s Capital A/c
b) Goodwill A/c Dr.
To Sacrificing Partners’ Capital A/c
c) Old Partners’ Capital A/c Dr.
To Goodwill A/c
d) New Partner’s Capital A/c Dr.
To Goodwill A/c
Answer: b) Goodwill A/c Dr. To Sacrificing Partners’ Capital A/c
96. In case of a capital contribution from a new partner, which of the following accounts is credited?
a) The new partner’s capital account
b) The goodwill account
c) The profit-sharing account
d) The revaluation account
Answer: a) The new partner’s capital account
97. The sacrificing ratio is the ratio in which old partners agree to give up part of their share to:
a) The new partner
b) Adjust accumulated profits
c) Equalize their capital balances
d) Settle liabilities
Answer: a) The new partner
98. The calculation of the new profit-sharing ratio is essential for:
a) Determining the new capital balances of the partners
b) Allocating the goodwill contribution among the partners
c) Adjusting the accumulated profits and losses
d) All of the above
Answer: d) All of the above
99. In a partnership firm, if goodwill is calculated using the capitalization of profits method, the capitalized value of goodwill is found by multiplying:
a) Average profits by the normal rate of return
b) The firm's capital by the normal rate of return
c) Super profits by the number of years of purchase
d) None of the above
Answer: a) Average profits by the normal rate of return
100. In a partnership reconstitution, if a revaluation account shows a debit balance, it indicates:
a) A loss on revaluation of assets and liabilities
b) A gain on revaluation of assets and liabilities
c) A new partner’s contribution to the firm
d) The need to adjust accumulated profits
Answer: a) A loss on revaluation of assets and liabilities
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