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Hidden Goodwill

The document discusses how to calculate the value of goodwill for a firm when admitting a new partner. It provides three examples: 1) The value of goodwill is calculated as the total capital of the firm minus the capital contributions of all partners. The total capital is the new partner's capital multiplied by the reciprocal of their share. 2) For partners A and B sharing profits 3:2, goodwill is calculated as the total capital of 600000 minus the combined capital contributions of 380000. 3) For another example, goodwill is calculated as the total capital of 280000 minus the combined capital contributions of 250000.

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sneha sasidharan
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1K views4 pages

Hidden Goodwill

The document discusses how to calculate the value of goodwill for a firm when admitting a new partner. It provides three examples: 1) The value of goodwill is calculated as the total capital of the firm minus the capital contributions of all partners. The total capital is the new partner's capital multiplied by the reciprocal of their share. 2) For partners A and B sharing profits 3:2, goodwill is calculated as the total capital of 600000 minus the combined capital contributions of 380000. 3) For another example, goodwill is calculated as the total capital of 280000 minus the combined capital contributions of 250000.

Uploaded by

sneha sasidharan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

HIDDEN GOODWILL

value of good will is determined on the basis of net worth or total capital of the firm

Net worth/ Total capital of firm=capital of new partner x reciprocal of the share of new partner
OR (Assets-Liabilities+ New partner’s capital)
Less: Capital of all partners+ accumulated profits(revaluation profits)-fictitious
assets(imaginary assets)
A & B are partners sharing profits in the ratio of
3:2.Their capitals are 160000 and 100000.They admit
Somesh for 1/5 th share. He brought 120000 as his
capital. Calculate value of goodwill.
Total capital of firm=capital of new partner X reciprocal of share
= 120000 x 5/1=60000

Less: Capital of all Partners(160000+100000+120000) =380000

VALUE OF GOOD WILL OF THE FIRM= 600000-380000


=220000
34. Total capital of firm=70000 x 4/1=280000
Less: Capital of partners(60000+120000+70000)=250000
Good will=280000-250000
=30000
Accounting of Accumulated losses and
reserve
• Accumulated losses and reserve shared by old partners in their old ratio

Journal entry for sharing of accumulated losses


Partners Capital Account Dr
To Profit and loss account’
Journal entry for sharing of reserve
General Reserve account Dr
To Partners Capital account

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