Hidden Goodwill:

Steps with example:

1.Find New Partner’s Capital. (given in the question)
(example: Rs. 20,000 for 1/5 share)
2.Find proportionately the total Capital of the Firm:
If for 1/5 share Capital is Rs.20000
For total capital = 20,000 x 5/1 = Rs.1,00,000

3.Find net Asset or Capital Employed or adjusted total

capital.
New partner’s capital + old partners’ adjusted capital
=Rs.70,000
4.The difference is the Goodwill.
1,00,000-70,000 = Rs. 30,000
Illustration No.31
S’s capital = Rs.35,000 for ¼ th share
Total capital or value of the firm = Rs.35,000 x 4/1
= Rs. 1,40,000
Total adjusted capital= Rs. 60,000 + 30,000 +35,000
= Rs. 1,25,000
Goodwill= 1,40,000 – 1,25,000 = Rs. 15,000
S’s share = 1/4 x 15,000 =Rs.3,750(premium for G/w)

Q’s sacrifice = 3,750 x 2/3 = Rs. 2,500

R’s sacrifice = 3,750 x 1/3 = Rs. 1,250
Or
Q’s sacrifice=2/12 x 15,000 = Rs.2,500
R’s sacrifice= 1/12 x 15,000 = Rs.1,250

2013
Jan.1 Bank A/c Dr. 35,000
To S’s Capital A/c 35,000
(Being capital brought by new partner)

S’s Current A/c Dr. 3,750

To Q’s Capital A/c 2,500
To R’s Capital A/c 1,250
(Being S’s share of Goodwill adjusted)
 A B C
18,000 9,000 -
(12,000) (6,000) (9,000)

6,000 3,000 (9,000)

2 : 1
4 : 2 : 3

Sacrifice= A = 2/3 – 4/9 = 18/27 – 12/27 = 6/27

B= 1/3 – 2/9 = 9/27 – 6/27 = 3/27
Sacrificing Ratio = 6:3 =2:1
C’s share = 1/3 x 27,000 = Rs. 9,000
A will get = 9,000 x 2/3 = Rs. 6,000
B will get = 9,000 x 1/3 = Rs. 3,000