Arrange the following steps in the correct accounting sequence when h…

Arrange the following steps in the correct accounting sequence when hidden goodwill is adjusted through capital accounts:

(A) Calculate the actual total capital of all the partners including the new partner.

(B) Calculate the firm's total capital on the basis of new partners share

(D) Determine new profit sharing ratio

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → (D), (B), (A), (C)

Hidden goodwill is goodwill that is not stated but can be worked out from the capital the new partner brings and the share he gets. Each step needs the one before it.

(D) Determine new profit sharing ratio — the new partner’s share is needed first, since the firm’s total capital is worked out from it.

(B) Calculate the firm's total capital on the basis of new partners share — the new partner’s capital divided by his share gives what the whole firm’s capital should be (Rs. 60,000 for 1/3 share means Rs. 1,80,000).

(A) Calculate the actual total capital of all the partners including the new partner — the old partners’ adjusted capitals plus the new partner’s capital give what the firm actually has.

(C) Determine the difference between the two capitals — the excess of the first figure over the second is the hidden goodwill of the firm.

NCERT (2026-27 edition):
Hidden Goodwill – “… Sometimes the value of goodwill is not given at the time of admission of a new partner. In such a situation it has to be inferred from the arrangement of the capital and profit sharing ratio. Suppose, A and B are partners sharing profits equally with capitals of Rs. 45,000 each. They admitted C as a new partner for one-third share in the profit. C brings in Rs. 60,000 as his capital. Based on the amount brought in by C and his share in profit, the total capital of the newly constituted firm works out to be Rs.1,80,000 (Rs. 60,000 × 3). But the actual total capital of A, B and C works out as Rs. 1,50,000 (Rs. 45,000 + Rs. 45,000 + Rs. 60,000). Hence, it can be inferred that the difference is on account of goodwill i.e., Rs. 30,000 (Rs. 1,80,000 – Rs. 1,50,000).”