Summary Hidden Goodwill in Partnership Accounts

Partnership Accounts
Hidden Goodwill
In some problems we don't have any goodwill given in the problem, but if it is to
prepare final accounts of a concern, the acquired goodwill is to be taken into the
books of accounts. For this purpose we have to evaluate the goodwill from other
particulars given

How to find the hidden goodwill ?
On Admission of a partner,
Goodwill (Hidden) = (New Partner's Capital x Reciprocal of New Partner's Share) -
(Old Partners' Capital + Net Accumulated Profits and Reserves + New Partner's
Capital)
For example:

A:B = 3:2 (Old Profit Sharing Ratio)

A:B:C = 3:2:1 (New profit sharing ratio)[3/6:2/6:1/6]

Capitals:

A's Capital in previous year balance sheet : 100,000

B's Capital in previous year balance sheet : 80,000

Profits and Reserves:

Accumulated Profits & Reserves : 30,000

Other Information:

New Partner, C Brought Capital Equivalent to : 60,000 (Cash)


Solution:
Goodwill (Hidden) = (New Partner's Capital x Reciprocal of New Partner's Share) -
(Old Partners' Capital + Net Accumulated Profits and Reserves + New Partner's
Capital)

Goodwill = (60,000 x 6/1) - ((100,000 + 80,000) + 30,000 + 60,000)
= 360,000 - 270,000
= 90,000

Therefore the goodwill which is hidden amounts to 90,000


Thank you 😉