Question

______ goodwill is the excess of desired total capital of the firm over the actual combined capital of all partners.

• A. Existing
• B. Premium
• C. Valued
• D. Hidden

Hint:

Hidden goodwill arises when no goodwill is shown but can be inferred from capital contributions and profit-sharing.

Answer 1

The Correct Option is D

Step 1: Understand the concept. 
Hidden goodwill is not recorded in the books, but inferred by comparing implied capital with actual capital. 
Step 2: Formula used: \[ \text{Hidden Goodwill} = \text{Total Capital of the Firm (based on share)} - \text{Combined Actual Capital} \] 
Step 3: Application. 
If the new partner brings in capital as per their share, and the total firm capital implied by that share exceeds the actual capital, the difference is hidden goodwill.