Question

Radha and Gopi are partners with ₹500000 capital each .They admitted Champa with ₹800000 capital. The Profit and loss account credit balance is ₹400000. Find the amount of hidden goodwill​

Answer 1

Given:

• Radha and Gopi are partners in a firm with Rs 5,00,000 as capital each.
• Champa was admitted into the firm, bringing Rs 8,00,000 as capital.
• The Profit & Loss Account showed a credit balance of Rs 4,00,000.

To find: The amount of hidden goodwill.

Answer:

The new profit-sharing ratio is assumed to be 1:1:1 [equal] as there aren't any specifications as to what the old ratio was or for how much the new partner was admitted.

Total capital of the new firm = New partner's capital × The reciprocal of his share

• New partner's capital = Rs 8,00,000
• Reciprocal of the new partner's share = 3/1

Total capital of the new firm = Rs 8,00,000 × 3/1 = Rs 24,00,000

Total capital of the old firm = Capital of all the partners [including the new partner] + Credit balance in the P & L A/c

• Capital of all the partners = Rs 5,00,000 + Rs 5,00,000 + Rs 8,00,000 = Rs 18,00,000
• Credit balance in the P & L A/c = Rs 4,00,000

Total capital of the old firm = Rs 18,00,000 + Rs 4,00,000 = Rs 22,00,000

Total goodwill of the firm = Total capital of the new firm - Total capital of the old firm

• Total capital of the new firm = Rs 24,00,000
• Total capital of the old firm = Rs 22,00,000

Total goodwill of the firm = Rs 24,00,000 - Rs 22,00,000 = Rs 2,00,000

Therefore, the amount of hidden goodwill is Rs 2,00,000.