Question

A and B are partners with capitals of Rs. $10,000$ and Rs. $20,000$ respectively and sharing profits equally. They admitted C as their third partner with one-fourth profits of the firm on the payment of Rs. $12,000$. The amount of hidden goodwill is __________.

• A. $Rs.6,000$
• B. $Rs.10,000$
• C. $Rs.8,000$
• D. None of these

Answer 1

The correct option is A $Rs.6,000$

When the value of the goodwill of the firm is not specifically given, the value of goodwill has to be inferred as follows:

Goodwill = (Incoming partner's capital * Reciprocal of share of incoming partner) - Total capital after taking into consideration the capital brought in by incoming partner.

Goodwill = Rs. 12000 * (4/1) - Rs. (10000 + 20000 + 12000)

Goodwill = Rs. 48000 - Rs 42000

Goodwill = Rs. 6000