Question

A & 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 1/4th profits 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 the above

Answer 1

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

When the value of 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