Arrange the following steps in the correct sequence when hidden goodw…

Arrange the following steps in the correct sequence when hidden goodwill is adjusted through capital accounts in case of admission of a partner:

(A) Compare capital required with actual capital.

(B) Calculate firm's total capital on the basis of new partner's 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), (C), (A)

When the value of goodwill is not given, it is worked out from the capital the new partner brings and the share he gets.

(D) Determine new profit sharing ratio. — first, because the new partner's share is the base of every later figure.

(B) Calculate firm's total capital on the basis of new partner's share. — his capital is multiplied by the reciprocal of his share to find what the whole firm's capital should be.

(C) Compute actual capital of the firm including new partner's capital. — the old partners' adjusted capitals plus the capital he brings.

(A) Compare capital required with actual capital. — the excess of (B) over (C) is the hidden goodwill.

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).”