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

The following steps detail the calculation of Prabhas's share of goodwill:

1. Determine the New Firm's Total Capital (Based on Prabhas's Contribution):
Prabhas contributes Rs 2,00,000 for a 1/5 ownership stake.
This implies the total capital of the new firm should be Rs 2,00,000 multiplied by 5, equaling Rs 10,00,000.

2. Calculate the Firm's Actual Total Capital:
Suhas's capital: Rs 4,00,000
Vilas's capital: Rs 3,00,000
Prabhas's capital: Rs 2,00,000
The sum of these capitals results in an actual total capital of Rs 4,00,000 + Rs 3,00,000 + Rs 2,00,000 = Rs 9,00,000.

3. Compute the Hidden Goodwill:
Hidden Goodwill is the difference between the New Firm's Total Capital (as calculated from the new partner's contribution) and the Actual Total Capital.
Hidden Goodwill = Rs 10,00,000 - Rs 9,00,000 = Rs 1,00,000.

4. Ascertain Prabhas's Share of Goodwill:
Prabhas's share of goodwill is calculated by multiplying the Total Hidden Goodwill by Prabhas's ownership share.
Prabhas's share of goodwill = Rs 1,00,000 * (1/5) = Rs 20,000.

Conclusion:
Consequently, Prabhas's share of goodwill amounts to Rs 20,000.