Question

Suhas and Vilas were partners in a firm with capitals of Rs 4,00,000 and Rs 3,00,000 respectively. They admitted Prabhas as a new partner for a \( \frac{1}{5} \) share in future profits. Prabhas brought Rs 2,00,000 as his capital. Prabhas' share of goodwill will be:

• A. Rs 20,000
• B. Rs 10,00,000
• C. Rs 9,00,000
• D. Rs 1,00,000

Hint:

When calculating goodwill in cases of new partners, calculate the total implied capital (based on the new partner's capital and share). The difference between this implied capital and the actual combined capital of all partners is the firm's hidden goodwill. The new partner's share of goodwill is then calculated based on their profit share.

Answer 1

The Correct Option is A

To calculate Prabhas' share of goodwill, we follow these steps:

1. Calculate the Total Capital of the New Firm (Based on Prabhas's Share):
Prabhas brings in Rs 2,00,000 for a 1/5 share.
Therefore, the total capital of the new firm should be Rs 2,00,000 * 5 = Rs 10,00,000

2. Calculate the Actual Total Capital of the Firm:
Suhas's capital: Rs 4,00,000
Vilas's capital: Rs 3,00,000
Prabhas's capital: Rs 2,00,000
Actual total capital: Rs 4,00,000 + Rs 3,00,000 + Rs 2,00,000 = Rs 9,00,000

3. Calculate the Hidden Goodwill:
Hidden Goodwill = Total Capital of the New Firm (based on new partner's capital) - Actual Total Capital
Hidden Goodwill = Rs 10,00,000 - Rs 9,00,000 = Rs 1,00,000

4. Calculate Prabhas's Share of Goodwill:
Prabhas's share of goodwill = Total Hidden Goodwill * Prabhas's share
Prabhas's share of goodwill = Rs 1,00,000 * (1/5) = Rs 20,000

Final Answer:
Therefore, Prabhas' share of goodwill is Rs 20,000.