A and B are partners sharing profit in equal ratio. A's capital is 90,000 and B's capital is *60,000. They admit C and agree to give him 1/5th share in future profit, C brings 70,000 as his capital. Value of hidden goodwill at the time of admission of C is: (a) 70,000 (b) 1,30,000 (c) 3,50,000 (d) 1,50,000
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Given:
- A and B are partners in a firm, sharing profits and losses in equal ratio.
- A's capital is Rs 90,000 and B's capital is Rs 60,000.
- C is admitted into the firm for 1/5 share in profits.
- C brings Rs 70,000 as his capital.
To find: The value of hidden goodwill.
Answer:
Capital of the new firm = Capital of the new partner × The reciprocal of his share
- Capital of the new partner = Rs 70,000
- Reciprocal of the new partner's share = 5/1
Capital of the new firm = Rs 70,000 × 5/1 = Rs 3,50,000
The sum total of the capital of all the partners must now be deducted from the capital of the new firm to find the goodwill of the firm.
Sum total of the capital of all the partners = Rs 90,000 + Rs 60,000 + Rs 70,000 = Rs 2,20,000
Goodwill = Capital of the new firm - Sum total of the capital of all the partners
Goodwill = Rs 3,50,000 - Rs 2,20,000
Goodwill = Rs 1,30,000
Therefore, the value of hidden goodwill at the time of C's admission is (B) Rs 1,30,000.
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