Accountancy Part AAdmission of a Partner

When goodwill has to be inferred from the arrangement of capital and…

When goodwill has to be inferred from the arrangement of capital and profit sharing ratio, it is called..........

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Hidden goodwill

Sometimes the value of goodwill is not stated when a partner is admitted. It is then worked out from the capital the new partner brings and the share of profit he gets: the total capital implied by his share, less the actual capital of all partners, is the goodwill. Because it is not given but found from these figures, it is called hidden goodwill. The average profit, super profit and capitalisation methods are ways of valuing goodwill from profits, not this inference.

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.”