Question

(1)
Answer the following in one word-
What is normal profit?
(ii) What is the result of change in profit sharing ratio ?
(iii) Is it necessary to value of goodwill at the change in profit sharing ratio ?
(iv) What type of asset is goodwill ?
(u) What is the basis of valuation of goodwill ?
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Answer 1

Answer:

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Explanation:

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Answer 2

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1. Normal profit is a profit metric that takes into consideration both explicit and implicit costs. It may be viewed in conjunction with economic profit. Normal profit occurs when the difference between a company’s total revenue and combined explicit and implicit costs are equal to zero.

2. Change in Profit Sharing Ratio among Existing Partners Without any admission or retirement of the partner, sometimes the partners may decide to change their existing profit sharing ratio. This may result in the gain to a few partners and loss to others.

3. There are various circumstances when it may be necessary to value goodwill. Some of the circumstances are; First, In the case of a partnership, when there is an admission, retirement, death or amalgamation, or a change in the profit-sharing ratio take place, the valuation of goodwill becomes necessary.

4. Goodwill is an intangible asset that arises when a firm purchases another firm at a premium value.

5. Valuation of Goodwill depends upon reputation of a business organization. Goodwill of a business may be termed as the credibility of the business in the market earned over a period of time. Goodwill is qualitative in nature. It is the reputation of the business which increases with the passage of time.