How to find out Hidden Goodwill on Admission of a partner.

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asked May 29, 2015 in Partnership-Admission by jbsclasses (3,971 points) 12,985 views

1 Answer

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Since in this question the value of goodwill is not given, so we have to infer the value of goodwill on the basis of C's share in profits and the amount of capital brought by him.

C brings Rs.26000 for 1/4 share in the firm,

hence full capital of the firm will be (26000 x 4/1)                                               = Rs104000

Less the total capitals of A + B + C = Rs.26000 + Rs.22000 + Rs.26000    =  Rs74000

Hidden Goodwill (Rs.104000 - Rs.74000)                                                           =  Rs30000

C's share in goodwill (Rs.30000 x 1/4 = Rs.7500), which he has not brought.  But C has to compensate old partners for their sacrifice in the profits of the firm.  Since the question is silent about the sacrifice made by A and B, we assume that they have sacrificed in their old ratio i.e. 1 : 1 (since profit sharing ratio between A and B is not given, then as per Partnership Act, 1932, their profit sharing ratio will be equal).  Journal entry for goodwill will be:

C's Capital/Current A/c   Dr.  7500

  To A's Capital A/c                             3750

  To B's Capital A/c                             3750

(A and B credited in their sacrificing ratio 1 : 1 on account of goodwill)
answered May 29, 2015 by jbsclasses (3,971 points)