Question

A & B are partners with capitals of Rs. 14,000 and Rs. 28,000 respectively and sharing profits equally. They admitted C as their third partner with 1/4 profits of the firm as the payment of Rs. 16,800. The amount of hidden goodwill is ____________.

• A. 8,400
• B. 14,000
• C. 11,200
• D. None of the above

Answer 1

The correct option is A 8,400

Hidden Goodwill is that amount which is directly not mentioned in the question and has to be found using various possibilities.

Hidden Goodwill is calculated using the formula given below:

$HiddenGoodwill=Totalcapital-Partne{r}^{\prime }sCapital$

Total capital is calculated using the formula given below:

$TotalCapital=Newpartne{r}^{\prime }scapital÷Hisshare$

Substitute values in the above equation

$TotalCapital=Rs16,800÷\frac{1}{4}=Rs16,800\times 4=Rs67,200$

Substitute values in the primary equation

$HiddenGoodwill=Rs67,200-(Rs28,000+Rs14,000+Rs16,800)=Rs67,200-Rs58,800=Rs8,400$

Thus hidden goodwill is $Rs8,400$.