Arrange following with regard to determination of Goodwill share of n…

Arrange following with regard to determination of Goodwill share of new partner based on hidden Goodwill determination.

(A) Existing partners decided to admit new partner.
(B) Determine new partner share in firm goodwill.
(C) Determine existing capital of all partners, including new partner.
(D) Determine total capital of new firm based on new partner's capital.
(E) Determine goodwill of the partnership firm.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → (A), (D), (C), (E), (B)

When the value of goodwill is not given, it is inferred from the capital brought in by the new partner and his share of profit:

(A) Existing partners decided to admit new partner – the starting point.

(D) Determine total capital of new firm based on new partner’s capital – new partner’s capital × reciprocal of his share.

(C) Determine existing capital of all partners, including new partner – the actual combined capital.

(E) Determine goodwill of the partnership firm – the difference between the two totals.

(B) Determine new partner share in firm goodwill – goodwill × his share of profit.

NCERT (2026-27 edition):
Hidden Goodwill – “… 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). Which is to be shared equally (old ratio) by A and B. This shall raise their capital accounts to Rs. 60,000 each and total capital of the firm to Rs. 1,80,000. In this, C’s Current account will be debited by Rs. 10,000 (his share of goodwill) and A and B’s Capital accounts credited by Rs. 5,000 each.”