Question

When the value of goodwill is not given in the question but has to be inferred on the basis of net worth of the firm then it is called ?​

Answer 1

Hidden goodwill. When the value of goodwill is not given in the question, it has to be calculated on the basis of total capital/net worth of the firm and profit sharing ratio. X and Y are partners with capitals of ₹ 10,000 each.

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Answer 2

ANSWER :

★ Hidden goodwill

• ➲ When the value of goodwill is not given in the question but has to be inferred on the basis of net worth of the firm then it is called Hidden goodwill.

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EXPLANATION :

❒ Hidden Goodwill :-

• ✎ Sometimes the value of goodwill of a firm doesnot appears in the books of accounts and hence it is not given in the question. In such a situation, goodwill is inferred on the basis of the net worth of the firm. Such goodwill is known as Hidden goodwill or Inferred goodwill.

❒ Calculation of Hidden Goodwill :-

• ✎ The amount of Hidden goodwill is calculated by ascertaining the difference between the capitalized value of the firm and capital invested (net worth) by all partners. For this purpose, the net worth of the firm is deducted from the capitalized value of the firm.

❍ Formula :

• ✠ Goodwill = Capitalized Value of Firm – Net worth (Capital) of Firm

Where,

• ➛ Capitalized Value of Firm = Capital Invested by the New Partner × Reciprocal of Share of the New Partner

And,

• ➛ Net worth (Capital) of Firm = Total Capital of Invested by the Partners (Including New Partner) + All Reserve