The amount of goodwill not given in the question is known as hidden goodwill.
What is the Hidden Goodwill :
At the time of admission of a new partner, the amount of goodwill is not specified in the books, But the new partner has to bring his share of goodwill then the amount of goodwill is calculated, this amount is known as Hidden Goodwill. It is also known as Inferred Goodwill.
Formula to calculate Hidden Goodwill: –
The hidden goodwill is calculated by calculating the difference between the capitalized value of the firm and capital invested (net worth) by all partners. The formula is shown as follows: –
| Goodwill | = | Capitalized Value of Firm | – | Net worth(Capital) of Firm |
| Capitalized Value of Firm | = | Capital Invested by new Partner | X | Reciprocal of his Share |
| Net worth(Capital) of Firm | = | Total Capital (Including New Partner’s share) | + | All reserve |
Illustration of Hidden Goodwill: –
Raj and Ram are the partners in the RamRaj Co. ltd. with capital total balance as on date of admission is Rs 1,50,000 and 1,50,000 respectively. The firm has a balance in the general reserve of Rs 1,00,000. Lakshman joins the partnership with the amount of capital of Rs 2,00,000 for 2/7rd share of profit. Calculate the total amount of Firm goodwill and Lakshman share of goodwill.
Solution: –
| Goodwill | = | Capitalized Value of Firm | – | Net worth(Capital) of Firm |
| Capitalized Value of Firm | = | Capital Invested by new Partner | X | Reciprocal of his Share |
| Capitalized Value of Firm | = | 2,00,000 | X | 7 |
| 2 |
| Capitalized Value of Firm | = | 7,00,000 |
Advertisement-X
| Net worth(Capital) of Firm | = | Total Capital (Including New Partner’s share) | + | All reserve |
| Net worth(Capital) of Firm | = | (1,20,000 | + | 1,50,000 | + | 2,00,000) | + | 90,000 |
| Net worth(Capital) of Firm | = | 5,60,000 |
| Goodwill | = | 7,00,000 | – | 5,60,000 |
| Goodwill of the Firm | = | 1,40,000 |
| Share of Goodwill of Lakshman | = | 1,40,000 | X | 2/7 |
| Share of Goodwill of Lakshman | = | 40,000 |
Advertisement-Y
Journal Entries: –
| Date | Particulars |
L. F. | Debit | Credit | |
| 1. | New Partner Capital/Current A/c | Dr. | XXXX | ||
| To Old Partners Capital/Current A/c | XXXX | ||||
| (Being amount of Goodwill adjusted) | |||||
Thanks for reading the topic.
please comment your feedback whatever you want. If you have any question please ask us by commenting.
Check out T.S. Grewal’s +2 Book 2020 @ Official Website of Sultan Chand Publication
Advertisement-X
