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 \( \frac{1}{5} \)th share in future profits. Prabhas brought Rs 2,00,000 as his capital. Prabhas' share of goodwill will be :

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

Hint:

Hidden goodwill is calculated when the new partner's capital contribution implies a higher total firm value than the combined actual capitals. Find Total Implied Capital (New Partner's Capital / New Partner's Share), subtract the Actual Combined Capital (Old Partners' Adjusted Capitals + New Partner's Capital) to get total goodwill. The new partner's share is then calculated based on their profit ratio.

Answer 1

The Correct Option is D

Step 1: Calculate Total Capital based on New Partner's Capital (Implied Capital):
Prabhas' Capital = Rs 2,00,000 for \( \frac{1}{5} \) share.
Implied Total Capital of the Firm = Prabhas' Capital / Prabhas' Share
Implied Total Capital = Rs 2,00,000 / \( \frac{1}{5} \) = Rs 10,00,000.
Step 2: Calculate Actual Combined Capital of All Partners:
Actual Combined Capital = Suhas' Capital + Vilas' Capital + Prabhas' Capital
Actual Combined Capital = Rs 4,00,000 + Rs 3,00,000 + Rs 2,00,000 = Rs 9,00,000.
Step 3: Calculate Total Hidden Goodwill:
Hidden Goodwill = Implied Total Capital - Actual Combined Capital
Hidden Goodwill = Rs 10,00,000 - Rs 9,00,000 = Rs 1,00,000.
Step 4: Calculate Prabhas' Share of Hidden Goodwill:
Prabhas' Share of Goodwill = Total Hidden Goodwill \( \times \) Prabhas' Profit Share
Prabhas' Share of Goodwill = Rs 1,00,000 \( \times \) \( \frac{1}{5} \) = Rs 20,000.
Conclusion:
Prabhas' share of the hidden goodwill is Rs 20,000.